Small Business Management Entrepreneurship and Beyond, 7th Edition by Timothy Hatten | Test Bank

TEST BANK for Small Business Management Entrepreneurship and Beyond, 7th Edition by Timothy Hatten Test Bank

CHAPTER 1: SMALL BUSINESS: AN OVERVIEW Multiple Choice 1. What percentage of net new jobs do small businesses create annually? a. from 10 to 25 percent b. from 40 to 50 percent c. from 60 to 80 percent d. from 85 to 100 percent Ans: C KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The number of people who make small business their primary occupation is which of the following? a. 2 million b. 6 million c. 12 million d. 25 million Ans: C KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Ronald Meese is the owner and operator of Meese Mining. To be considered a small business for crediting purposes, what is the maximum number of employees that Ronald can employ? a. 50 b. 100 c. 200 d. 500 Ans: D KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 4. Industry classification codes that are based on annual sales revenue or number of employers are abbreviated as ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. NAICS b. SIC2 c. NAIA d. NCAA Ans: A KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The industry that employs the greatest number of people in small business is which of the following? a. construction b. manufacturing c. retail businesses d. services Ans: D KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. What percentage of businesses in the service sector are small? a. 71 percent b. 51 percent c. 31 percent d. 11 percent Ans: A KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. William Smith works for an automobile company that generates an annual revenue exceeding $200 million, but accounts for less than one percent of the global automobile market. Based on this information, the company that William works for would be considered a ______. a. conglomerate b. corporation c. small business d. franchise Ans: C KEY: Learning Objective: 1.1: Describe the characteristics of small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 8. Although Small Business Administration (SBA) standards allow up to 500 employees in some types of businesses, the most common limit is ______. a. 10 b. 50 c. 100 d. 200 Ans: C KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Until the early 1800s, most goods were produced ______. a. by small manufacturers b. by workers in their cottages c. by large factories d. by large groups of workers in the town hall Ans: B KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The term economy of scale refers to which of the following? a. Increasing costs through the production of larger quantities. b. Decreasing costs through the production of larger quantities. c. Decreasing costs through the production of smaller quantities. d. Increasing costs through the production of smaller quantities.

Ans: B KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 11. The marketing concept was a paradigm shift that involved ______. a. a focus on production b. a focus on quality c. a focus on consumer wants and needs

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. a focus on marketing Ans: C KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 12. What startup business of the 1960s used flatter organizational structure, improved customer service, and more flexibility to knock Sears out of its role of world’s largest retailer? a. K-Mart b. Woolco c. Wal-Mart d. Target Ans: C KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Why has the number of students studying entrepreneurship increased so dramatically since the early 1970s? a. More students wanted to buy this book and take this professor’s course. b. The economy has been bad so no other jobs have been available. c. Marketplace desires change quickly. d. More small businesses are being formed and the cost of mistakes is higher.

Ans: D KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 14. What is the annual revenue currently generated by Hispanic-owned businesses? a. $700 billion b. $150 billion c. $222 billion d. $39 billion Ans: C KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Diverse and multicultural work environments 15. SBA 8(a) certification provides preference in bidding on federal and state contracts to ______. a. women only b. minorities only c. women and minorities d. first-generation Americans ANS: C KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 16. Since 2002, the share of women owning their own business increased by what percent? a. 10 b. 20 c. 38 d. 50 Ans: C KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 17. John Deere relies on hundreds of vendors to produce component parts for its farm equipment. This illustrates which secret of small business success? a. Small businesses have competitive advantage over large businesses. b. A symbiotic relationship exists between small and large businesses. c. Small businesses perform more efficiently than larger ones. d. Small businesses are able to innovate more easily than larger ones.

Ans: B KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 18. The chemical producer, Hoechst Celanese, found that diversity in the work force was particularly beneficial in which area? a. problem solving b. reaching a consensus c. exploring one point of view d. downsizing Ans: A KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 19. Small businesses are more able than big businesses to perform efficiently in which of the following areas? a. management b. higher profit margins c. fewer expenses d. distribution Ans: D KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Which of the following are the inherent factors that work in favor of small businesses? a. ability to remain flexible and innovative b. management expertise c. emphasis on variety d. emphasis on quantity Ans: A KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. The ability to offer greater value than one’s competitors is called which of the following?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. quality b. reduction in the price charged c. competitive advantage d. qualitative advantage Ans: C KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The stronger and more sustainable the competitive advantage a small business maintains, the better the chances of ______. a. guaranteeing a profit b. winning and keeping customers c. obtaining a loan from a bank d. entering the international market Ans: B KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. You have a small business that offers printing services. One of the services you offer is a high-speed color copier. You are currently the only printing service in a tristate area that offers such a service. You currently have ______. a. creative destruction b. a competitive advantage c. a qualitative advantage d. a capital advantage Ans: B KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 24. Large telecommunications companies have an incentive to improve existing lines of products and services to better serve their customers, rather than invent new products.

This best demonstrates what aspect of innovation in business? a. Research and development departments in large companies fuel innovation.

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. Compared to larger companies, small businesses are not financially equipped to innovate. c. Real innovation tends to come from independent inventors and small businesses. d. Large companies are too inflexible to handle real innovation.

Ans: C KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 25. In order to take advantage of economies of scale, large businesses usually ______. a. devote resources to produce selected quantities of products b. devote resources to produce large quantities of products c. devote resources that are committed for only short time periods d. devote resources that are able to quickly respond to a changing market Ans: B KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. The incentive for innovation of new ideas and products is generally strongest for ______. a. research and development divisions of large companies b. small businesses c. government-funded research laboratories d. colleges and universities Ans: B KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Inventing a new way to organize physical inputs to produce a product or service refers to ______. a. process innovation b. product innovation c. service innovation d. management innovation Ans: A

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Linda Waters, a chemical engineer at a large pharmaceutical company, has lead a team to develop a new drug that effectively treats the common flu faster than any other drug on the market. This is an example of what type of innovation? a. process innovation b. product innovation c. service innovation d. management innovation Ans: B KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 29. Creating a new way to organize a business’s resources involves ______. a. process innovation b. product innovation c. service innovation d. management innovation Ans: D KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. The most common types of innovations produced by small business relate to ______. a. service and products b. manufacturing c. management techniques d. new resources offered by financial institutions Ans: A KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. The process of creative destruction involves which of the following? a. the destruction of current products b. the replacement of current products c. the innovation of new products d. the replacement of existing products with new and better products Ans: D KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 32. Big business competes based on mass production and, thus, lower prices. Small business can compete based on ______. a. personalized services and products b. lower prices than big business can offer c. quality d. accessibility to large amounts of capital Ans: A KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Allen Campbell’s small tire business has recently closed due to credit foreclosure.

This is an example of ______. a. voluntary withdrawal b. bankruptcy c. business failure d. adequate management Ans: C KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 34. The valuable skills and knowledge that employees of a business possess are collectively called ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. business assets b. tangible inventory c. outsourcing d. intellectual capital Ans: D KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. The lifeblood of any new small business is which of the following? a. cash b. a large target market c. a customer base d. a quality product/service Ans: A KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. The most valuable asset a small business owner has is ______. a. a quality product b. buildings and equipment c. a good relationship with his/her banker d. employees Ans: D KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Intellectual capital is the skill and knowledge possessed by ______. a. the small business owner b. the small business consultant c. the small business employees d. the banker for a small business Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. A business failure occurs when a business closes for any of the following reasons except ______. a. bankruptcy b. a reorganization c. a receivership d. a merger Ans: D KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. The most common cause of business failure is ______. a. choosing the wrong type of business ownership b. starting a business that is too large c. lack of marketing expertise by the small business owner d. lack of management experience Ans: D KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. A common cause of business failure is ______. a. choosing the wrong type of business ownership b. starting a business that is too large c. industry weakness d. specialized management knowledge Ans: C KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 41. Sam closed the doors to her home-based consulting company only two years after opening because she was tired of working 80-hour weeks. This is an example of which mistake leading to business failure? a. failing to understand the level of commitment required b. neglecting to plan c. not using employees effectively d. mishandling finances Ans: A KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 42. A business failure occurs when a business ______. a. closes because of retirement by the owner b. is sold c. closes because of lack of demand for the product d. closes with financial losses to creditors Ans: D KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. A partnership that is restructured or a business that moves to a new location is considered to be which of the following? a. business failure b. business termination c. business success d. business venture Ans: B KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. According to the U.S. Census Bureau, approximately ______ of closed businesses were successful at the time of their closure. a. one-quarter

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. one-third c. two-thirds d. three-quarters Ans: B KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Which percentage of small businesses are actually forced out of business with financial loss to creditors? a. 10 percent b. 20 percent c. 50 percent d. 75 percent Ans: B KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 1-1 Scenario 1-1. Larry Linsuine is thinking of marketing a new idea he has been using.

After years of experience as a deer hunter, he has perfected a tree stand that gives him an added advantage in deer hunting. He calls his new tree stand The Tree Hugger. He has now begun the process of manufacturing his tree stands with 20 employees working out of his garage. His life savings have provided the equity for his operation.

NARREND 46. In Scenario 1-1, what type of business is Larry beginning? a. large business b. joint venture c. small business d. none of these Ans: C PREFACE NAME: Scenario 1-1 KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 47. In Scenario 1-1, what advantage will Larry have over his competition with his new product? a. competitive advantage b. comparative advantage c. qualitative advantage d. financial advantage Ans: A PREFACE NAME: Scenario 1-1 KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-1 48. In Scenario 1-1, what will be the most difficult problem that Larry will encounter? a. obtaining sufficient cash b. finding a target market c. obtaining accurate information d. deciding upon appropriate advertising media Ans: A PREFACE NAME: Scenario 1-1 KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-1 NARRBEGIN: 1-2 Scenario 1-2. Franky Ferguson has just reached a turning point in his business. He can no longer retain quality employees because he cannot meet his payroll, he does not have an adequate cash flow to pay his current bills, and he is three months behind in his loan payment to the bank. He must close the doors of this business.

NARREND 49. In Scenario 1-2, the valuable skills and knowledge that Franky’s employees possessed is known as ______. a. financial capital b. intellectual capital c. monetary capital d. knowledge capital Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 PREFACE NAME: Scenario 1-2 KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-2 50. In Scenario 1-2, what is the primary reason Franky has failed? a. inadequate management b. lack of a quality product c. no target market d. inadequate advertising Ans: A PREFACE NAME: Scenario 1-2 KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-2 51. In Scenario 1-2, which of the following are areas should Franky have worked on in order to help ensure the success of his business? a. applied for credit for short-term financing b. laid off some employees c. managing finances d. increased his advertising budget Ans: C PREFACE NAME: Scenario 1-2 KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-2 52. In Scenario 1-2, with the closing of his business, Franky has experienced ______. a. business termination b. business failure c. business closing d. business merger Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 PREFACE NAME: Scenario 1-2 KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-2 53. In Scenario 1-2, Franky joins what percentage of small businesses that have failed? a. 10 percent b. 20 percent c. 50 percent d. 75 percent Ans: B PREFACE NAME: Scenario 1-2 KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 1-2

True/False 1. The Small Business Administration (SBA) estimates there are over 220 million small businesses in the United States.

Ans: F KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. According to the Small Business Administration, 50 percent of all small businesses are home based.

Ans: T KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Of all U.S. companies exporting goods, few are classified as small businesses.

Ans: F KEY: Learning Objective: 1.1: Describe the characteristics of small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Small businesses create more than 50 percent of all private U.S. gross domestic product (GDP).

Ans: T KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. There are several definitions for small business; however, the most common criterion is the number of employees working for that business.

Ans: T KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. A manufacturer with fewer than 500 employees is classified as a small business.

Ans: T KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The industry that employs the largest number of people in small business is the manufacturing industry.

Ans: F KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. In the construction industry 90 percent of the companies are classified as small businesses.

Ans: F KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. A microbusiness has fewer than five employees, including the owner.

Ans: T KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Economy of scale is the lowering of costs through production of larger quantities.

Ans: T KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Until the early 1800s, much of the U.S. economy was based on agriculture.

Ans: T KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The marketing concept was a paradigm shift that focused on new advertising media.

Ans: F KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 13. Interest in entrepreneurship on campuses is high, with almost 2,000 colleges offering courses on the subject.

Ans: T KEY: Learning Objective: 1.2: Explain the role of small business in the U.S. economy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.2: Small Businesses in the U.S. Economy Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. According to SBA reports, Hispanic-owned businesses generate the most annual revenue of all U.S. minority-owned businesses.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: F KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Medium TOP: AACSB Standard: Diverse and multicultural work environments 15. Self-employment in all nonwhite categories rose by large percentage gains since 2016.

Ans: T KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 16. Asian-owned businesses totaled over 1.9 million, generating over $670 billion of annual revenue.

Ans: T KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 17. Businesses owned by women make up 25 percent of privately owned businesses.

Ans: F KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 18. Resources exist to specifically assist women- and minority-owned businesses.

Ans: T KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 19. Although small businesses tend to enjoy a higher profit margin due to their economies of scale, large businesses are often better at distribution.

Ans: F KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Diversity in the workplace is changing the way our nation and our businesses operate.

Ans: T KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Diverse and multicultural work environments 21. Big businesses need small businesses.

Ans: T KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. A symbiotic relationship exists between small business and big business.

Ans: T KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The stronger and more sustainable the competitive advantage, the better the chance of winning and consequently keeping customers.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 1.4: Identify some of the opportunities available to small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Small business is able to react less quickly to new and changing markets than is large business with its increased economies of scale.

Ans: F KEY: Learning Objective: 1.4: Identify some of the opportunities available to small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The ability to remain flexible and innovative is an inherent factor in the favor of small businesses.

Ans: T KEY: Learning Objective: 1.4: Identify some of the opportunities available to small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Computers are an invention that small business has contributed to society.

Ans: T KEY: Learning Objective: 1.4: Identify some of the opportunities available to small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Service innovation involves offering a new or altered service for sale.

Ans: T KEY: Learning Objective: 1.4: Identify some of the opportunities available to small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 28. Most small businesses use market research as the primary means of learning about customers.

Ans: F KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Creative destruction refers to the failure of small businesses due to fault of their own.

Ans: F KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Economist Joseph Schumpeter called the replacement of existing products, processes, ideas, and businesses with new and better ones creative destruction.

Ans: T KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. The lifeblood of any new business is cash/sufficient startup capital.

Ans: T KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Most new businesses do not survive past their first year.

Ans: F KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 33. The most common cause of business failure is inadequate management and financing.

Ans: T KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. Lack of marketing experience is one of the major problems faced by small business owners.

Ans: F KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. External factors beyond a small business owner’s control are to blame for most business failures.

Ans: F KEY: Learning Objective: 1.6: Name the most common causes of small business failure.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 1.5: Understanding the Risks of Small Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Describe in detail the three primary characteristics of a small business.

Ans: Generally fewer than 100 employees.

Independently owned, operated, and financed.

Relatively little impact on the industry.

KEY: Learning Objective: 1.1: Describe the characteristics of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.1: What Is Small Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Briefly discuss the value of diversity in business.

Ans: Diversity in the workplace can provide creative problem-solving ideas.

A varied workforce is needed at every level of an organization.

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 1.3: Discuss the importance of diversity in the marketplace and the workplace.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.3: Workforce Diversity and Small Business Ownership Difficulty Level: Medium TOP: AACSB Standard: Diverse and multicultural work environments 3. Explain in detail three advantages that contribute to the success of a small business.

Ans: Competitive advantage innovation flexibility knowledge of the customers.

KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Describe the four primary types of innovation.

Ans: product innovation service innovation process innovation management innovation KEY: Learning Objective: 1.5: Suggest ways to court success in a small business venture.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 1.4: Secrets of Small Business Success Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 2: SMALL BUSINESS MANAGEMENT AND ENTREPRENEURSHIP Multiple Choice 1. What type of agreement allows a person the right to produce a product with permission of the intellectual property owner? a. leasing agreement b. production agreement c. private label agreement d. licensing agreement Ans: D KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. In a six-stage model of innovation development, testing extends to refining the produce design and identifying production options at which stage? a. discovery b. product development c. early growth d. commercialization Ans: B KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The building of prototypes occurs in which stage of the six-stage model of innovation? a. discovery b. product development c. technology demonstration d. commercialization Ans: C KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. One barrier to innovation in small business is ______. a. a shortage of engineering and production job talent

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. lack of entrepreneurs entering new markets c. too much data analytics d. too many new business opportunities Ans: A KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Rubin’s day-to-day job as a business owner involves identifying opportunities for which marketable ideas exist and assuming the risk to make these ideas happen. Rubin can best be described as a/an ______. a. innovator b. marketer c. entrepreneur d. small business manager Ans: C KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: Entrepreneurship and the Small Business Manager Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 6. Jasper has developed a concept for a start-up company that involves developing a new process for priming and painting automobile panels. Based on this example, Jasper is focusing on which entrepreneurial behavior? a. creation b. innovation c. risk assumption d. performance intention Ans: B KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: What Is an Entrepreneur?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 7. Which of the following behaviors was not cited as being included in most definitions of an entrepreneur? a. controlling b. creation c. innovation d. risk assumption

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. A small business manager faces which of the following environmental forces? a. finding opportunities b. prompting creativity c. locating an incubator d. hiring and retaining employees Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. ______ is the entrepreneurial behavior that involves the expectation of high levels of growth or profit. a. General management b. Supply chain c. Risk assumption d. Performance intention Ans: D KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: What Is an Entrepreneur?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Entrepreneurship primarily involves which phase of business? a. the start-up process b. hiring of key employees c. maintaining a positive cash flow d. building and maintaining a sufficient customer base Ans: A KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 11. The entrepreneurial process in the start-up process model begins with ______. a. a visit to the local banker for start-up funds b. a visit to the local library for more information on the business c. a visit to a favorite business professor for advice d. an innovative idea that is refined as the idea is thought through Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 12. The entrepreneurship process begins with ______. a. an innovative idea b. a triggering event c. implementation d. growth Ans: A KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Sue Pallen is a partner in a cake-decorating company. Her role within the company is to identify new markets for growth and sustaining the company’s long-term financial health by maintaining all financial records. As such, Sue can best be described as a/an ______. a. entrepreneur b. CEO c. nonprofit manager d. small business manager Ans: D KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.1: The Entrepreneur-Manager Relationship Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 14. The time span for the innovation phase may be ______. a. one month or less

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. one year or more c. several months or even several years d. five years or more Ans: C KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The phase of implementation in the entrepreneurial process involves all but which of the following? a. introducing new products b. opening new markets c. industrial reorganization d. developing an advertising campaign Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Which of the following is the key element needed to bring the entrepreneurial idea to reality during the implementation stage? a. capital/money b. commitment c. management expertise d. a college education Ans: B KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. When does the entrepreneurship stage end and the small business management stage begin? a. when the maturity stage ends b. when the growth stage ends c. after the entrepreneurial event ends d. when the triggering event ends Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 18. Which stage of the start-up process is characterized by relative certainty that the business will survive? a. growth b. maturity c. harvest d. implementation Ans: B KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The stage in the start-up process model in which the small business owner removes himself/herself from the business is which of the following? a. growth b. maturity c. implementation d. harvest Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. In the growth stage of the start-up process model, what is the primary goal of the small business? a. regulations b. employees c. vendors d. reaching critical mass (survival) Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Forces that occur outside of the business that affect the business and its owner are referred to as ______. a. financial factors b. controlled factors c. environmental factors d. internal factors Ans: C KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. In the triggering event and the implementation stages of the start-up process model, which of the following environmental factors will affect the small business? a. role models b. suppliers c. bankers d. competition Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. An entrepreneur faces which of the following environmental forces? a. hiring and retaining employees b. dealing with vendors and suppliers c. fighting government regulations d. identifying product opportunities Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. In the ______ stage of the business management process, attention is placed on team building, setting strategies, and creating a structure and culture of the business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. harvest b. growth c. maturity d. innovation Ans: B KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. In the triggering event stage of the startup process model, which of the following personal characteristics is needed for a small business owner? a. leadership b. vision c. commitment d. boredom Ans: C KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. In the innovation and triggering event stages of the start-up process model, which of the following personal characteristics is needed for a small business owner? a. better opportunity b. planning c. commitment d. risk taking Ans: D KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. In the growth stage of the start-up process model, which of the following organizational characteristics is needed? a. strategy b. marketing c. IPO d. operation management

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. About half of all business owners choose to go into business for themselves because they ______. a. want to earn lots of money b. like the challenge c. want to avoid hard work d. want to fulfill others’ expectations Ans: B KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. The primary reason most people start their own business is to ______. a. build for their family b. earn large sums of money c. use their skills/abilities d. live where they like Ans: C KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Which of the following is not prerequisite for becoming a successful entrepreneur? a. passion b. determination c. knowledge d. education Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 31. The personal quality linked to entrepreneurship in which people are motivated to excel and choose situations where success is likely is known as ______. a. locus of control b. need to achieve c. need to succeed d. high performance goals Ans: B KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. The ability to control one’s own fate is known as ______. a. locus of control b. self-determination c. perseverance d. need to achieve Ans: A KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. The ability to see, conceive, and create new and unique products, services, and processes is known as ______. a. innovation b. risk taking c. product development d. locus of control Ans: A KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. A characteristic of entrepreneurial personality that leads one to avoid goals that would be extremely difficult to achieve or goals with success almost guaranteed is called ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. internal locus of control b. a high desire for risk c. flexibility d. a high need to achieve Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. After spending 15 years working in the restaurant industry, Alex has decided to open a restaurant of his own. His 15 years of experience will allow him to capitalize on which of the following? a. passion b. determination c. trustworthiness d. knowledge Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 36. In terms of education level of new business owners, the most common educational degree level is the ______. a. bachelor degree level b. MBA level c. PhD level d. associate degree level Ans: A KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. The one overriding characteristic needed to be a successful small business owner is which of the following? a. confidence b. energy c. vision for the future

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. incredible tenacity Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Which two areas of coursework are the fastest growing subjects in business schools? a. management and marketing b. entrepreneurship and small business management c. operation management and finance d. management and finance Ans: B KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Preparing Yourself for Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. One-day to one-year programs offered through college extension departments that are tailored to entrepreneurs and small business owners are referred to as ______. a. small-business counseling programs b. entrepreneurial degree programs c. corporate grind programs d. executive education programs Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Preparing Yourself for Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Which of the following is more important in the future development of a small business owner than the formal education received in school? a. financial backing b. management expertise c. lifelong learning d. technical skills Ans: C KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Preparing Yourself for Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 2-2 Scenario 2-2. Harry Homer and Jenny Juno are two people extremely interested in establishing a small business. Harry is interested in marketing his newly developed product, which increases the speed by which data are transferred through phone lines.

He sees great potential for his new product and is willing to devote his life savings and begin this new venture. Jenny is also interested in this product. She too sees a great potential down the road as businesses adapt this new technology. In the future, she can see a major company growing quickly with the ability to go public or merge with a major phone company.

NARREND 41. In Scenario 2-2, Jenny could be categorized as what type of a business individual? a. entrepreneur b. business manager c. small business owner d. small business entrepreneur Ans: B KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Comprehension Answer Location: Entrepreneurship and the Small Business Manager Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 2-2 42. In Scenario 2-2, which phase is Harry at in the start-up process model? a. implementation b. triggering event c. innovation d. growth Ans: A KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 2-2 43. In Scenario 2-2, at which stage in the start-up process model will Jenny begin her part in this new venture?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. implementation b. innovation c. growth d. triggering event Ans: C KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 2-2 44. In Scenario 2-2, all but which of the following are characteristics Harry possesses as a small business person? a. risk taker b. passion c. perseverance d. risk averse Ans: D KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Comprehension Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 2-2 45. In Scenario 2-2, what will be the most challenging aspect of beginning this new business? a. long hours spent on the business b. the commitment that the business requires c. income uncertainty d. choosing the right form of business ownership Ans: C KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 2-2

True/False 1. A small business manager and an entrepreneur perform the same functions.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: Entrepreneurship and the Small Business Manager Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Entrepreneurs recognize an opportunity and start a business to take advantage of it.

Ans: T KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: What Is an Entrepreneur?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Entrepreneurship and small business management are processes, not isolated incidents.

Ans: T KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.1: The Entrepreneur-Manager Relationship Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Financial risks, material risks, and psychological risks are all risks faced by the entrepreneur.

Ans: T KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Knowledge Answer Location: What Is an Entrepreneur?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Mergers, IPOs, and ESOPs are all forms that can be taken in the harvest stage of the startup process model.

Ans: T KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 6. A triggering event is a specific event or occurrence that sparks the entrepreneur to proceed from thinking to doing.

Ans: T KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. In the end, every business will eventually reach the harvest stage.

Ans: F KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Environmental factors are the traits possessed by the business owner that affect the development of the small business.

Ans: F KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Personal characteristics vary as a business evolves from one stage to another.

Ans: T KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. There is only one factor that could be called a triggering event.

Ans: F KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 11. Personality characteristics are not useful in predicting who will be a successful entrepreneur.

Ans: T KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The primary reason most people go into business for themselves is to gain the respect of others.

Ans: F KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 13. Independence and control over their own lives are reasons many people begin small businesses.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. More than 50 percent of business owners started their own business in order to earn large sums of money.

Ans: F KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Individuals who prefer steady pay and a normal nine-to-five work schedule also tend to gravitate toward self-employment.

Ans: F KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Income uncertainty is one of the most challenging aspects of starting a new business.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The conclusion after more than 30 years of research on personal characteristics is that successful entrepreneurs cannot be predicted.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 18. The typical entrepreneur tends to accept moderate risk only after careful examination.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 19. The three most important characteristics that every successful entrepreneur possesses are perseverance, needed technical skills, and a deep belief in himself/herself.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 20. Entrepreneurs tend to have a weaker internal locus of control than do people in general.

Ans: F KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 21. One’s own efforts are the most important factor to a person with a strong locus of control.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 22. Over 25 percent of all new business owners have an MBA or other professional degree.

Ans: F KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Preparing Yourself for Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Entrepreneurs and small business owners typically have higher education levels than the general public.

Ans: T KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Knowledge Answer Location: Preparing Yourself for Business Ownership Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Innovation is the catalyst for business growth.

Ans: T KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 25. The most basic level of product satisfaction is the expected product.

Ans: F KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Product pivoting is one example of new product development.

Ans: T KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. New and innovative ideas are worth their weight in gold in the business world.

Ans: F KEY: Learning Objective: 2.4: Explain the role of innovation to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 2.4: Creativity and Innovation in Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Compare and contrast a small business manager and an entrepreneur.

Ans: Entrepreneur--creates own business, innovative, assumes risk, and implements the innovative idea.

Small business manager--deals with the day-to-day running of the established business, concerned with the growth of the company and the harvest period.

KEY: Learning Objective: 2.1: Articulate the differences between the small business manager and the entrepreneur.

REF: Cognitive Domain: Comprehension Answer Location: Entrepreneurship and the Small Business Manager Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe the behaviors that are possessed by entrepreneurs.

Ans: creation innovation risk assumption general management performance intention

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Comprehension Answer Location: Traits of Successful Entrepreneurs Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Use the start-up process model to compare and contrast an entrepreneur and a small business manager.

Ans: Entrepreneur--innovation, triggering event, and implementation.

Small business manager--growth, maturity, and harvest.

KEY: Learning Objective: 2.2: Discuss the steps in preparing for small business ownership.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.2: A Model of the Start-Up Process Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. List and discuss the primary reasons that people go into business for themselves.

Ans: (Listed in order from highest level of importance) use skills/ability control over life build for family like the challenge live where/how one likes gain respect/recognition earn lots of money fulfill others’ expectations best alternative available KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Describe two advantages and two disadvantages of self-employment.

Ans: Advantages--independence, use of one’s own skills, and opportunity for profits.

Disadvantages--income uncertainty, long hours, and the business takes over one’s personal life.

KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 6. Describe three characteristics of a successful entrepreneur.

Ans: passionate locus of control determined innovative knowledgeable need to achieve KEY: Learning Objective: 2.3: Enumerate the advantages and disadvantages of selfemployment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 2.3: Your Decision For Self-Employment Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 3: SOCIAL ENTREPRENEURS, ETHICS, AND STRATEGIC PLANNING

Multiple Choice 1. The obligations of a business to maximize the positive effects it has on society and minimize the negative effects are referred to as ______. a. ethics b. social responsibility c. strategic planning d. sustainability Ans: B KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 2. Which concept refers to the fact that a business has the obligation to impact society on four levels--economic, legal, ethical, and philanthropic? a. business responsibility b. moral obligation c. social responsibility d. ethical responsibility Ans: C KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 3. Strategic planning is providing the ______ game plan for a business. a. near-term b. long-term c. short-term d. intermediate-term Ans: B KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 4. ______ is a set of shared beliefs within an organization. a. Ethics b. Social responsibility c. Strategic planning d. Culture Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Social Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 5. Wilma has been described by others as a good corporate citizen. She contributes to the community by volunteering through her church and she strives to improve the quality of life in everyone she meets. Wilma possesses qualities within which level of the social responsibility pyramid? a. philanthropic goodwill b. ethical responsibility c. legal obligations d. economic responsibility Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 6. Art has always played by the rules and obeyed the law. He believes that law is society’s codification of right and wrong. Art possesses qualities within which level of the social responsibility pyramid? a. philanthropic goodwill b. ethical responsibility c. legal obligations d. economic responsibility Ans: C KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Legal Obligations

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 7. The level of social responsibility that has historically been the focus of business is ______. a. legal b. economic c. ethical d. philanthropic Ans: B KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 8. The view that a business must make a profit in order to survive and make other contributions is known as ______. a. economic responsibility b. legal responsibility c. ethical responsibility d. philanthropic responsibility Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 9. Which level of social responsibility centers on making sure creditors are paid, a strong competitive advantage is maintained, and operations are efficient? a. economic responsibility b. legal responsibility c. ethical responsibility d. philanthropic responsibility Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 10. Which responsibility is at the highest level on the social responsibility pyramid?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. economic responsibility b. legal responsibility c. ethical responsibility d. philanthropic responsibility Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 11. Economist Milton Friedman emphasized the fact that business had “one and only one social responsibility,” that being ______. a. economic responsibility b. legal responsibility c. ethical responsibility d. philanthropic responsibility Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 12. The level of responsibility that leads to obedience of the law is what level of social responsibility? a. economic responsibility b. legal obligation c. ethical responsibility d. philanthropic goodwill Ans: B KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Legal Obligation Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 13. The minimum threshold of socially expected business behavior is which two levels of social responsibility? a. economic and philanthropic b. economic and legal c. ethical and legal d. ethical and philanthropic

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 14. Dealing with the consequences of one’s own actions is referred to as ______. a. idealism b. utilitarianism c. deontology d. virtue ethics Ans: B KEY: Learning Objective: 3.2; Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 15. As a business manager, Sally focuses on employing only those individuals who have a strong character of honesty and integrity. This aligns most closely with which ethical perspective? a. idealism b. utilitarianism c. deontology d. virtue ethics Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 16. The company New Leaf develops and sells eco-friendly paper in an industry that is notorious for both severe environmental impact and resistance to change. This company can be viewed as ______. a. socially responsible b. economically responsible c. legally responsible d. fiscally responsible Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Social Responsibility Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 17. The obligation of individuals and businesses to do what is right is known as ______. a. economic responsibility b. legal responsibility c. ethical responsibility d. philanthropic responsibility Ans: C KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 18. Which level of social responsibility is concerned with a business doing well without the expectation of anything in return? a. economic responsibility b. legal obligations c. ethical responsibility d. philanthropic goodwill Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 19. Philanthropic goodwill would be concerned with which of the following? a. reasonable profit b. meeting the legal requirements of all laws dealing with discrimination c. meeting obligations to society d. improving quality of life and promoting generosity Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 20. Philanthropic activity is best suited to ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. small companies b. medium-sized companies c. large corporations d. any sized company Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 21. A small business sponsoring a Little League team for the summer would be an example of which level of social responsibility? a. economic b. legal obligations c. ethical d. philanthropic goodwill Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 22. In the National Business Ethics Survey, ______ percent of U.S. small business respondents considered their top managers ethical. a. 80 b. 58 c. 49 d. 41 Ans: A KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.3: Ethics and Business Strategy Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 23. The rules of moral values that guide decision making, or one’s understanding of right or wrong, are referred to as ______. a. cultural values b. business ethics c. mission and vision d. social norms Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.3: Ethics and Business Strategy Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 24. A tool with which the owner of a business communicates ethical expectations to everyone associated with the business is called a ______. a. code of conduct b. tool of ethics c. code of ethics d. tool of conduct Ans: C KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 25. Which of the following does not apply to an ethical code that is written for a small business? a. It should be written concisely and clearly. b. It should apply equally to all employees. c. It should be a reflection of the small business owner’s ideals and beliefs. d. It should not be included in an employee handbook.

Ans: D KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 26. How often should your firm’s ethics code be reviewed? a. annually b. once it is established, it should never be changed c. every day d. whenever the firm is covered unfavorably in the media Ans: A KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 27. A long-term planning tool used for viewing a business and the environments in which it operates in the broadest terms is ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. strategic planning b. intermediate planning c. short-term planning d. strategic alternatives Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. The first function of good management is which of the following? a. good planning b. good organization c. good leadership d. good recruiting and hiring Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Green marketing refers to businesses showing concern for which of the following issues? a. the environment b. willingness to devote a percentage of profits to charitable organizations c. landscaping cities through development of parks d. offering child care services as part of employee benefit packages Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 30. A/an ______ helps an organization determine the most appropriate steps to take to accomplish the goals that are identified in the strategic plan. a. mission statement b. code of ethics c. strategic objective d. action plan Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. ______ is a long-range management tool that helps small businesses be proactive in the way they respond to environmental change. a. Strategic planning b. Short-term planning c. Intermediate planning d. Strategic alternatives Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. The process of ______ provides an overview of a business and all the factors that may affect it in the next three to five years. a. strategic planning b. short-term planning c. intermediate planning d. strategic alternatives Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. The statement of the reason an organization exists is called a ______. a. profit margin b. mission statement c. statement of intentions d. profit potential Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. The foundation on which all other goals and strategies are based is a ______. a. mission statement b. statement of intentions c. code of ethics d. list of company goals

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. One of Robert’s roles within the company that he manages is to constantly examine what is happening in all sectors that have an impact on the industry, both within the business and outside of it. This role is referred to as ______. a. social entrepreneurship b. BCG analysis c. environmental analysis d. strategic impass Ans: C KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 36. The mission statement should have how many words? a. 100 or fewer b. 75 or fewer c. 50 or fewer d. 25 or fewer Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. The step of strategic planning in which the internal strengths and weaknesses of a business and the opportunities and threats that exist outside the business is called a/an ______. a. SWAT analysis b. SWOT analysis c. external environmental analysis d. internal environmental analysis Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 38. Environmental analysis is important to small businesses because ______. a. they are less flexible b. they are less sensitive to customer preferences c. they have more competitors d. they have fewer resources to risk Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. The increased popularity of tattoos among teens and twenty-somethings means opportunity for skin artists who are able to provide this service in a small business. This is an example of what type of opportunity? a. economic b. legal c. competitive d. sociocultural Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 40. An analysis of the ______ environment identifies strengths and weaknesses that exist within the business. a. internal b. external c. economic d. sociocultural Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Threats and opportunities to a business can be found in which of the following environments? a. economic and legal only b. legal and sociocultural only c. technological and competitive only d. economic, legal, sociocultural, competitive, and technological

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Which of the following environments would the threat of new trade restrictions fall into? a. economic b. legal/regulatory c. sociocultural d. competitive Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Which of the following environments would a change in the age of the Baby Boomers fall into? a. economic b. legal/regulatory c. sociocultural d. competitive Ans: C KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. Which of the following environments would a change in the interest rate fall into? a. economic b. legal/regulatory c. sociocultural d. competitive Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 45. Which type of analysis is important in matching the strengths of a business to the external environmental factors that are identified? a. external analysis b. internal analysis c. SWOT analysis d. SWAT analysis Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. The facet of a business that the business does better than all of its competitors is known as which of the following? a. competitive advantage b. competitive edge c. competitive power d. absolute advantage Ans: A KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. Incorporating the best elements of a competitor’s products into a product is called ______. a. benchmarking b. reverse engineering c. reengineering d. SWOT analysis Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 48. Which of the following ideas is not valuable in defining competitive advantage? a. Advantages are relative, not absolute. b. Multiple types of competitive advantages should be strived for. c. Areas of competition change over time. d. Once found, a good competitive advantage will remain an advantage for years.

Ans: D KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 49. ______ refers to how passively or aggressively the businesses within an industry compete with each other. a. Threat of substitute products or services b. Threat of new entrants c. Degree of rivalry among existing competitors d. Degree of external competition Ans: C KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 50. ______ is a function of how easily other businesses can enter the market. a. Degree of rivalry among existing competitors b. Threat of new entrants c. Bargaining power of competition d. Threat of substitute products or services Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 51. ______ affects the price that must be paid to produce goods. a. Degree of rivalry among existing competitors b. Bargaining power of suppliers c. Bargaining power of buyers d. Threat of substitute products or services Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 52. ______ affects how much prices may be changed. a. Degree of rivalry among existing competitors b. Bargaining power of suppliers c. Bargaining power of buyers

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. Threat of substitute products or services Ans: C KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 53. ______ is determined by the options that customers have when buying the products or services of a business. a. Threat of new entrants b. Degree of rivalry among existing competitors c. Bargaining power of buyers d. Threat of substitute products or services Ans: D KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 54. Intrigued by the fast-paced technology industry, Samantha decided to open a technology start-up. She soon realized that the competition in this industry is fierce and a high level of capital is needed to stay on top. After a few years, she sold her company and went on to pursue different interests. This is an example of which fatal flaw in strategic thinking? a. failure to identify a true competitive advantage b. misreading industry attractiveness c. pursuing a competitive advantage that is not sustainable d. compromising a strategy in an attempt to grow faster Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 55. ______ are a good example of failing to identify a true competitive advantage. a. Imitations b. Misleading strategies c. Vague employee instructions d. Misreading industries Ans: A KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 56. Having a competitive advantage is ______, otherwise the business is not needed. a. unnecessary b. necessary c. critical d. relative to the industry Ans: C KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. In order to cope with a quickly changing competitive environment, small businesses need to be ______. a. competition driven b. reactive c. market driven d. liquid Ans: C KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 58. Occasionally, competitive advantages are gained after a product ______. a. has been previously introduced b. has been discontinued c. has been recalled d. has been discovered to have numerous defects Ans: A KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 59. There are ______ generic competitive strategies by which a small business can gain a competitive advantage. a. two b. three c. four d. five

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 60. Differentiation can effectively remove direct competition if customers can be shown that ______. a. the difference is better b. the difference is lower prices c. the product is collectible d. the product is brand name specific Ans: A KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 61. If a business intends to compete primarily on product price, it must ______. a. advertise b. raise prices c. lower prices d. lower costs Ans: D KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 62. Studies that measure the impact that a mass merchandiser like Wal-Mart has on small retailers have shown that small stores usually ______. a. go out of business b. stay in business but make minor profits c. outperform Wal-Mart d. benefit as long as they stock different merchandise Ans: D KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 63. An advantage does not necessarily have to be in the ______. It may come from anything the business does. a. market b. product c. economy d. customer’s tastes Ans: B KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 64. ______ research offers a way to answer questions about the customers’ changing wants and needs. a. Market b. Competitive c. Internal d. Operations management Ans: A KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 65. The products and services that people like and dislike at any particular time are shaped by ______. a. one or two major influences b. usually ten influences c. hundreds of identifiable influences d. hundreds of unidentifiable influences Ans: D KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 66. In order to write effective goals, which of the following factors must be considered? a. Goals should be written in terms of actions. b. Goals should be measurable. c. Goals should be difficult to accomplish. d. Goals should have no definite time period for completion.

Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Goal Setting and Strategies Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 67. Cindy owns a flower shop, and her primary goal is to increase sales in the current fiscal year. This goal can best be described as ______. a. measurable b. challenging, yet attainable c. communicated with everyone in the company d. written with a time frame for achievement Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Goal Setting and Strategies Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 68. According to the text, if completion of your SWOT and competitive analysis identifies no major problems ______. a. you must have overlooked something b. there may not be problems at present but you need to focus on potential future problems c. that may be because you are not doing anything d. don’t fix anything Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Strategic Alternatives Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 69. A business-level goal describes ______. a. who the small business owner is and what the business is b. the performance desired from specific departments c. a plan of action that details how plans will be accomplished d. what the overall business should accomplish Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Goal Setting and Strategies Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 70. A function-level goal describes ______. a. who the small business owner is and what the business is

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. the performance desired from specific departments c. a plan of action that details how plans will be accomplished d. what the overall business should accomplish Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Goal Setting and Strategies Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 71. A strategy describes ______. a. who the small business owner is and what the business is b. the performance desired from specific departments c. a plan of action that details how plans will be accomplished d. what the overall business should accomplish Ans: C KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 72. What type of planning addresses operational growth? a. strategic planning b. business planning c. ethical planning d. financial planning Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Strategic Planning in Action Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking NARRBEGIN: 3-1 Scenario 3-1. Betty’s Bed and Breakfast is a small business that provides a bed and breakfast for travelers usually on their way to the Grand Canyon. The business resides in a small community whose economy is primarily devoted to tourism. Betty obtains her livelihood from her business. Because she provides food, she is inspected yearly by government agencies to ensure she is meeting governmental guidelines concerning food preparation. Betty feels strongly that her business is not only to provide shelter and food but also information on directions, room reservations, medical information, and any other information that she has available or can find for her guests. This information includes a short-cut that can be taken to the Grand Canyon that reduces traveling time by an hour. This past summer she sponsored a soccer team comprised of elementary students from the local grade school. The soccer team placed third in the state finals.

Hatten, Small Business Management 7e SAGE Publishing, 2020 NARREND 73. In Scenario 3-1, which level of the social responsibility pyramid would Milton Friedman maintain Betty should be most concerned with? a. economic responsibility b. legal obligations c. ethical responsibility d. philanthropic goodwill Ans: A KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-1 74. In Scenario 3-1, which level of the social responsibility pyramid is Betty concerned with when she is preparing food? a. economic responsibility b. legal obligations c. ethical responsibility d. philanthropic goodwill Ans: B KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Legal Obligations Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-1 75. In Scenario 3-1, besides providing her customers with the best service possible, Betty is also interested in the rest of their trip. Which level of the social responsibility pyramid addresses this aspect of her business? a. economic responsibility b. legal obligations c. ethical responsibility d. philanthropic goodwill Ans: C KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 NAR: 3-1 76. In Scenario 3-1, the sponsorship of the soccer team would fall under which level of social responsibility? a. economic responsibility b. legal obligations c. ethical responsibility d. philanthropic goodwill Ans: D KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-1 77. In Scenario 3-1, Betty’s competitive advantage would be which of the following? a. the bed and food she provides b. the sponsorship of the soccer team c. the extra services she provides her guests d. the strictness with which she adheres to food preparation Ans: C KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 3-1 NARRBEGIN: 3-2 Scenario 3-2. Terry’s Technology Service is currently conducting a SWOT analysis of the business. Several differing factors have been observed. One of the major strengths of Terry’s business is that he has kept current with all the new technologies that have been developing. The ability to adapt the technologies to business applications has been a key feature of the business. A definite weakness of the business is that Terry’s cash flow has been strained lately due to the capital investments that are necessary in order to keep up with current technological advances. Owing to Terry’s good relationship with his customers, he is getting many referrals for new customers. A recent consideration is his competition. A new business has started in town that is offering similar services.

NARREND 78. In Scenario 3-2, keeping current with the new technologies and the cash flow problem are examples of which environment? a. external environment

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. internal environment c. economic environment d. technological environment Ans: B KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-2 79. In Scenario 3-2, Terry’s new competition and his potential customer referrals are examples of which environment? a. external environment b. internal environment c. economic environment d. technological environment Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-2 80. In Scenario 3-2, an increase in interest rates seems very likely in the future. This will severely affect Terry’s cash flow problems. This is an example of a threat from which of the following environments? a. economic environment b. legal/regulatory environment c. sociocultural environment d. competitive environment Ans: A KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-2 81. In Scenario 3-2, Terry is seriously considering dropping his hourly fee. He is doing this in response to which environment? a. economic environment b. legal/regulatory environment c. sociocultural environment d. competitive environment

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-2 82. In Scenario 3-2, considering the business that Terry is pursuing, which of the following environments must he pay close attention to? a. economic environment b. legal/regulatory environment c. competitive environment d. technological environment Ans: D KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 3-2

True/False 1. Strategic planning is the process of identifying the mission, goals, and objectives of a business.

Ans: T KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Social responsibility is the obligation of a business to maximize the positive impact it has on society and to minimize the negative impact.

Ans: T KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 3. Social responsibility refers to the rules of moral values that guide decision-making.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: F KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 4. The philanthropic goodwill level on the social responsibility pyramid is concerned with a company’s obligation to be ethical and to do what is right, just, and fair.

Ans: F KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 5. Historically, the primary role of business has been economic.

Ans: T KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 6. Philanthropy is the bottom level of the social responsibility pyramid.

Ans: F KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Philanthropic Goodwill Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 7. Milton Friedman emphasizes the philanthropic side of social responsibility.

Ans: F KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Economic Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning

Hatten, Small Business Management 7e SAGE Publishing, 2020 8. Virtue ethics deals with the consequences of one’s own actions.

Ans: F KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 9. Over the past several years, the term social entrepreneur has emerged as a way to describe the use of business skills to marshal resources.

Ans: T KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.2: Social Entrepreneurship Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 10. Changes in ethical standards and values usually precede changes in laws.

Ans: T KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 11. Utilitarianism is rule-based or duty-based.

Ans: F KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Knowledge Answer Location: Ethical Responsibility Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 12. A code of ethics is a formal statement of the long-range goals and plans for a company.

Ans: F KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning

Hatten, Small Business Management 7e SAGE Publishing, 2020 13. When it comes to a code of ethics, companies should take a “three Ps” approach: print it, post it, and pray they read it.

Ans: F KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 14. A code of ethics that is supported and enforced by management will become a part of a company’s culture.

Ans: T KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

REF: Cognitive Domain: Knowledge Answer Location: Codes of Ethics Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 15. The long-term planning tools used for viewing a business and its environment in the broadest of terms are known as the operational plan.

Ans: F KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The mission statement is the foundation on which all other goals and strategies of a business are based.

Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The last step in the strategic planning process involves the establishment of control systems.

Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.4: Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. An effective mission statement balances ideas and reality.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The heart of the strategic planning process is the mission statement.

Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Mission Statement Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. There is little connection between strategic planning and social responsibility.

Ans: F KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 21. The step of strategic planning in which the manager identifies pollution caused by the firm is known as environmental analysis.

Ans: F KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. A small business may be significantly more affected by an environmental change than a larger business would be.

Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. An analysis of the external environment identifies opportunities and threats faced by a business.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. External analysis assesses the strengths and weaknesses of a company.

Ans: F KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Environmental Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. A competitive advantage must be sustainable over time in order to be a benefit to the business.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. A company’s competitive advantage could be defined as being the two things that the company does best that set it apart from the competition.

Ans: F KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. A competitive advantage is the advantage that a business has over its competitors.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. A competitive advantage need not be sustainable in order to remain an advantage.

Ans: F KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 29. A competitive advantage is relative, not absolute.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 30. Competitive advantage must be defined from the customer’s perspective.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. If a small business cannot sustain a competitive advantage, the best recommendation is to view the business as a short-term investment rather than a longterm enterprise.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Having a competitive advantage is critical. Businesses must do something better than the competition.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Competitive advantage as a core of small business strategy is critical, but the inertia of the marketplace may also be relied on for survival.

Ans: F KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 34. When looking for a competitive advantage, one of the best tools for survival is looking at the mistakes of other businesses.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. A competitive advantage will cause customers to be more satisfied with one business, resulting in increased market share for that business.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 36. The three generic competitive strategies by which a business can gain competitive advantage are lowering costs, differentiation, and focus strategies.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Focus strategies target a broad segment of the market.

Ans: F KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Small businesses concentrate on niches or narrow market segments.

Ans: T KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Differentiation means that a product or service is different than the product or service of the competition.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. A single method to continuously differentiate a product will sustain a competitive advantage.

Ans: F KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Competitive Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. The most difficult part of strategic planning is drafting a list of alternatives.

Ans: F KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Strategic Alternatives Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 42. Planning for the future is an exact science.

Ans: F KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Strategic Alternatives Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Business plans and strategic plans support each other but accomplish different purposes.

Ans: T KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Knowledge Answer Location: Strategic Planning in Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking Short Answer 1. Discuss the relationship between social responsibility, ethics, and strategic planning.

Ans: Knowing what is important to the small business owner, the business, and society is significant when determining where a business is headed and how the small business owner is going to get there.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Strategic planning is the long-range plan for the company.

Ethics and the commitment to social responsibility felt by the business determine what is acceptable in reaching the long-term goals.

KEY: Learning Objective: 3.1: Explain the relationship between social responsibility, ethics, and strategic planning.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 3.1: Relationship Between Social Responsibility, Ethics, and Strategic Planning Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 2. Compare and contrast the four levels depicted in the pyramid of social responsibility.

Ans: Economic responsibility--the obligation to make a profit in order for the business to survive.

Legal obligations--the obligation to obey the law.

Ethical responsibility--the obligation to do what is right, just, and fair and to avoid harm.

Philanthropic goodwill--the obligation to be a good corporate citizen, contribute resources to the community, and to improve the quality of life.

KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Social Responsibility Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 3. List and describe the four areas of laws that regulate business activity.

Ans: Consumer protection trade protection environmental protection employee protection KEY: Learning Objective: 3.2: Describe the impact of social entrepreneurship on small business.

REF: Cognitive Domain: Comprehension Answer Location: Legal Obligations Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 4. Discuss the importance of a code of ethics for a business.

Ans: formal statement of what is expected in the conduct of the business serves as a guide to employees reflects the ethical ideas of the owner serves as a resource for the consequences of not following the code avoids double standards develops a consistent public image KEY: Learning Objective: 3.3: Discuss the importance of ethics for your small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Codes of Ethics Difficulty Level: Medium TOP: AACSB Standard: Ethical understanding and reasoning 5. Describe the importance of a mission statement to a business.

Ans: provides the reason an organization exists identifies the purpose, scope, and goals of a business. provides directions foundation on which all other goals and strategies are based publicly acknowledges the position of the company maintains a balance between ideas and reality heart of the strategic planning process KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension Answer Location: Mission Statement Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Define competitive advantage and explain two core ideas that are valuable in defining competitive advantage.

Ans: the facet of a business that it does better than all of its competitors any advantage is relative, not absolute strive for multiple types of competitive advantage areas of competition change over time KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. List and describe at least five areas of comparison that may be included in a competitive analysis.

Ans: image location layout atmosphere products services pricing advertising sales methods KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level:

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 8. Explain three of the five basic forces of competition that exist within every industry.

Ans: the degree of rivalry among existing competitors the threat of new entrants the bargaining power of suppliers the bargaining power of buyers the threat of substitute products or services KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 9. Describe three benefits of gaining a competitive advantage.

Ans: can help establish a self-sustaining position in the marketplace customers will be more satisfied with that product than the competition’s product increase in market share larger sales and more profits more money that can be invested into the business to make it better KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 10. Explain in detail one strategy by which a business could gain a competitive advantage.

Ans: lower cost differentiation focus strategy KEY: Learning Objective: 3.4b: Explain the importance of competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Competitive Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 11. Describe three components of well-written goals.

Ans: written in terms of outcomes rather than actions measurable challenging yet attainable communicated to everyone in the company written with a time frame written clearly and concisely KEY: Learning Objective: 3.4a: Describe each step in the strategic planning process.

REF: Cognitive Domain: Comprehension

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Goal Setting and Strategies Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 4: THE BUSINESS PLAN Multiple Choice 1. In the building blocks for the business model canvas, value proposition includes ______. a. which need we are solving b. for whom this product creates value c. what assets we need d. how many revenue streams run into the model Ans: A KEY: Learning Objective: 4.2: Explain the purpose and process of developing a business model.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.2: Business Models and Feasibility Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Although passion is needed to run a business, it must be tempered with logic and rationality to bring success. A business plan does this by ______. a. removing the need for capital b. providing perfect planning c. proving feasibility d. identifying demographics Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. A document that tests the feasibility of a business idea, describes ways to raise capital, and serves as a road map for future operations is called a ______. a. code of ethics b. mission statement c. business plan d. strategic plan Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. Which of the following questions will bankers first ask potential small business owners? a. What will be used as collateral? b. How long before a profit will be made? c. Where is the business plan? d. How much debt will be held by the business?

Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Many people just starting a new business focus on ______. a. obtaining financing b. the excitement and emotions involved in beginning a new business c. hiring good employees d. making a profit Ans: B KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Warren is in the process of developing a business plan, so he visits a nearby Small Business Development Center to get guidance. Which of the following is the best advice that could be given by the SBDC? a. “try to write your business plan in the first person” b. “try to write a plan that is longer than 45 pages” c. “follow a business plan template” d. “consider your audience” Ans: D KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 7. In general, how many pages should the business plan contain? a. 10 pages or less b. 30 pages or less c. 40 pages or less d. at least 45 pages Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Free or inexpensive business planning assistance is available from ______. a. a local accountant b. small business development centers c. local consultants d. competitors Ans: B KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. In terms of appearance, a business plan should be ______. a. handwritten b. professionally prepared by outside experts c. printed and spiral bound d. printed on gold-leaf-trimmed pages Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Which of the following people is most qualified to write the business plan for a proposed new business? a. the small business owner b. a banker c. a consultant d. a college professor Ans: A KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. A condensed abstract of a business plan used to spark reader interest and to highlight critical information is called a/an ______. a. business plan b. strategic plan

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. executive summary d. code of ethics Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. A small business plan should be written by ______. a. consultants b. investors c. proposed employees d. proposed business owners Ans: D KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Daniel is preparing a business plan for the carwash that he plans to open. He is writing a one-page abstract of the plan to highlight crucial information and to spark readers’ interest. This abstract is part of which business plan component? a. cover page b. executive summary c. table of contents d. industry analysis Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 14. In writing her business plan, Rita wants to include an honest portrayal of the setbacks that she had come up against along the way in forming the business. This would fit under which area of the business plan? a. industry analysis b. company information c. executive summary d. cover page Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 15. ______ involves identifying trends and changes that are happening at the national and international levels that may influence the future of a small business. a. Environmental analysis b. Financial positioning c. Internal positioning d. Quality control Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 16. Descriptions of factors such as the background of the company, your competitive advantage, company objectives, and the legal business form would be found in which of the following sections? a. executive summary b. company information c. products and services d. marketing research and evaluation Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. A good executive summary provides the opportunity to develop an elevator pitch.

What is an elevator pitch? a. the approach you take when selling elevators b. the short explanation of your business idea condensed to its essence c. directions you provide to vendors to find your business d. a list of your products Ans: B KEY: Learning Objective: 4.5: Create a pitch.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.5: The Pitch Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Factors such as uses for the product, patents and trademarks, and how the product is different will be found in which of the following sections? a. executive summary

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. company and industry c. products and services d. marketing research and evaluation Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Which of the following areas is addressed in the marketing research section of the business plan when the target markets are identified by some common variable? a. markets b. market trends c. competition d. market share Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 20. Which of the following areas is addressed in the marketing research section of the business plan when the price leader, the quality leader, and the service leader are identified? a. markets b. market trends c. competition d. market share Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 21. Although Bob’s Outdoor Retailer competes directly with nearby supercenters, managers at Bob’s are confident that individuals within a ten-mile radius of the business will be loyal customers. These managers are establishing a target market based on ______. a. demographics b. psychographic variables c. geographic location d. market trends Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 22. Stella, a tattoo artist, visits tattoo conventions in a nearby city every few months to attract potential customers who live on the outskirts of her business’s geographic market. This is an example of using ______. a. pricing as part of the marketing plan b. promotion as part of the marketing plan c. place as part of the marketing plan d. service policies as part of the marketing plan Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 23. Which of the following areas is addressed in the marketing research section of the business plan when sales in relation to total industry sales are expressed as a percentage? a. markets b. market trends c. competition d. market share Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Which of the following areas is addressed in the marketing plan section of the business plan when gross margin and the ability to make a profit after all expenses are paid are discussed? a. pricing b. promotion c. place d. service policies Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 25. Which of the following areas in the marketing plan section of the business plan is described when advertising media, trade shows, and direct mail are discussed? a. pricing b. promotion c. place d. service policies Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Which of the following areas in the marketing plan section of the business plan is described when sales representatives and channels of distribution are discussed? a. pricing b. promotion c. place d. service policies Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. The section of the business plan where such items as facilities, location, capital equipment, labor force, inventory control, and purchasing are discussed is ______. a. product/services section b. company and industry c. marketing d. manufacturing and operations Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Which of the following areas in the marketing plan section of the business plan is described when warranties, customer problems and complaints, and subcontracts are discussed? a. pricing b. promotion

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. place d. service policies Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. The ______ section of the manufacturing and operations segment of the business plan discusses the proximity to customers or the proximity to transportation. a. geographic location b. facilities c. make or buy policy d. control systems Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. The ______ section of the manufacturing and operations segment of the business plan discusses the adequacy and quantity of skilled workers that are available to help in the production of the product/service. a. labor force b. facilities c. make or buy policy d. control systems Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Which of the following sections of the manufacturing and operations section of the business plan discusses what will be produced in the plant and what components will be purchased to be assembled into the finished product? a. labor force b. facilities c. make-or-buy policy d. control systems Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Developing adequate parking for a business establishment involves which area of the manufacturing and operations plan? a. facilities b. geographic location c. labor force d. control system Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 33. Ensuring product quality is part of which portion of a manufacturing and operations plan? a. facilities b. geographic location c. labor force d. control system Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. Which of the following is a possible contingency that should be anticipated in the critical risks and assumptions section of the business plan? a. competition through underpricing by competitors b. unrealistic timelines c. inadequate management d. lack of sufficient capital Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 35. Contingencies related to ______ in the critical risks and assumptions segment of the business plan discusses either sales that are too low or sales that are too high. a. unreliable sales forecasts

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. competition c. unfavorable industry-wide trends d. insufficient numbers of trained employees Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 36. Which of the following is the contingency in the critical risks and assumptions segment of the business plan that discusses events occurring within the economy and society that could negatively affect the product/service being offered? a. unreliable sales forecasts b. competition c. unfavorable industry-wide trends d. insufficient numbers of trained employees Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 37. Which section of the benefits to community segment is concerned with the multiplier effect--the number of hands in the community affected by new dollars? a. economic development b. community development c. human development d. monetary development Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 38. A document that graphically shows how job positions fit within an organization is sometimes included in the appendix of a plan. This document is referred to as a/an ______. a. mission statement b. network diagram c. organization chart d. control chart Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. As a new small business owner, Sandra enjoys the fact that her business provides needed goods and services to her community. This involves which type of community benefit? a. economic development b. community development c. human development d. sociocultural development Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 40. While finalizing the business plan for the pizza shop that he hopes to soon open, Alfred sits down with his teenage children to discuss the possibilities of them taking over ownership many years down the road. This demonstrates which business plan component? a. developing a financial plan b. developing an exit strategy c. identifying benefits to the community d. building a management team Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 41. The financial document that is used by startup businesses to show where capital comes from and for what it will be used is called a ______. a. cash-flow statement b. projected earnings statement c. sources and uses of funds d. income statement Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 42. The financial document that shows the amount of money a business has on hand at the beginning of a time period, receipts, and money paid out is called a/an ______. a. cash-flow statement b. projected earnings statement c. sources and uses of funds d. income statement Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. For the first year of business, cash-flow projections should be made ______. a. daily b. monthly c. quarterly d. yearly Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. Adequate cash flow can be especially critical if the business is a ______. a. manufacturing business b. service business c. seasonal/cyclical business d. health care business Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Which of the following financial documents shows the assets, liabilities, and owner’s equity for a business? a. cash-flow statement b. income statement c. balance sheet d. statement of retained earnings Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. Which financial document shows what is owned and what is owed? a. cash-flow statement b. income statement c. balance sheet d. statement of retained earnings Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. A financial document that shows sales revenues, expenses, and net profit or loss is called a ______. a. cash-flow statement b. statement of retained earnings c. balance sheet d. profit-and-loss statement Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. Which of the following financial documents projects the best and the worst that could happen in order to calculate profits or losses? a. cash-flow statement b. statement of retained earnings c. balance sheet d. profit-and-loss statement Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. The point at which sales and costs are equal and a business is neither making nor losing money is called ______. a. profit

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. gross margin c. breakeven point d. net income Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. Break-even analysis occurs in which area of the business plan? a. financial plan b. risks and assumptions c. marketing plan d. HR plan Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. After the financial projections have been made for the break-even analysis, it may be helpful to compare the projections to ______. a. the banker’s projections b. industry averages c. the accountant’s projections d. wholesale averages Ans: B KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 52. In which section of a business plan would resumes, advertising samples, brochures, organization charts, and the floor plans of the business be found? a. manufacturing and operations b. product or services c. marketing research and evaluations d. appendix Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 53. The last step in the preparation of a business plan should be which of the following? a. professional binding in leather b. review and evaluation c. inclusion of appendices d. summary of the business plan into one page or less Ans: B KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. Preparing a pro-forma profit-and-loss statement for the first three years of operation takes place before ______. a. estimating the initial capital requirements for the business b. listing possible sources of start-up capital c. computing financial ratios d. identifying the product or service Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 55. In her business plan, Jane indicates that her new company will rely on word-ofmouth advertising for the first few years. This is an example of which common error in writing business plans? a. depending on outdated industry comparisons b. making unsubstantiated assumptions c. misunderstanding financial information d. lacking marketing strategies Ans: D KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 56. Which of the following is a mistake that a writer of a good business plan should avoid? a. being overly optimistic b. understating profits c. understating expenses

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. using the most current information available Ans: A KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. Which of the following is a mistake that a writer of a good business plan should avoid? a. ignoring the macro-environment b. concentrating on the macro-environment c. investing heavily in the company d. submitting a professional-looking copy of the business plan Ans: A KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 4-1 Scenario 4-1. Jean is contemplating opening her new small business called Jean’s Gems. She realizes that the first step in beginning her new business is writing a business plan. Since she has never started her own business before, she has many questions. She has attempted to follow an outline she found in an old newspaper article.

Her first rough draft contained over 75 pages and now she is discouraged with the process. In fact, she is not even sure if she needs to continue. As in the case of many small business entrepreneurs, funds are limited. If you were Jean, what would you do?

NARREND 58. In Scenario 4-1, which of the following is a place Jean could go to receive free and/or inexpensive help in writing her business plan? a. small business development center b. small business consultant c. an accountant d. a lawyer Ans: A KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 4-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 59. In Scenario 4-1, the optimum length for Jean’s business plan would be how many pages? a. 10 pages b. 25 pages c. 40 pages d. 100 pages Ans: C KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 4-1 60. In Scenario 4-1, in which order should the following components of the business plan be written? a. Determine market feasibility, list possible sources of capital, and identify product/service. b. Prepare executive summary, develop marketing strategy, and identify product/service. c. Prepare executive summary, identify product/service, and choose target market. d. Identify product/service, identify marketing mix, and prepare executive summary.

Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 4-1 61. In Scenario 4-1, which of the following sections will be the most important segment of Jean’s business plan? a. executive summary b. marketing plan c. identification of the target market d. manufacturing and operations plan Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 4-1 NARRBEGIN: 4-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 Scenario 4-2. Petro is considering opening a new small business called Petro’s Playground. It will be an inside playground with climbing equipment, jungle gym, pit of balls, slides, and swings. Petro’s closest competition has been in business for four years and provides quality service along with the fun of the playground. The competition is located four miles away in a large city and Petro is hoping to acquire some of his competition’s market share by providing lower prices and more diversity in playground equipment.

NARREND 62. In Scenario 4-2, the target market for Petro’s Playground would be ______. a. senior citizens b. all children between the ages of 0 and 4 c. middle-aged adults d. children between the ages of 2 and 12 Ans: D KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 4-2 63. In Scenario 4-2, the market share that Petro hopes to capture refers to a. Petro’s sales in relation to the sales of his competitors b. Petro’s sales this year compared to next year c. Petro’s sales this year compared to the next five years d. Petro’s competitors’ sales compared to industry sales Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 4-2 64. In Scenario 4-2, which advantages may Petro have initially in obtaining new customers? a. lower prices and new and different equipment b. good service c. new building d. location Ans: A KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking NAR: 4-2 65. In Scenario 4-2, Petro plans on keeping his prices ______. a. always lower than the competition b. the same as the competition c. at a rate where gross margin will allow a profit d. always higher than the competition Ans: C KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 4-2

True/False 1. Planning is essential if a business is to succeed.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. A business plan can be the difference between running a business proactively and running a business reactively.

Ans: T KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. A business plan should provide a road map for future operations.

Ans: T KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Business plans do not necessarily need to be written on paper; having the plan in mind is sufficient.

Ans: F KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The overall appearance of a business plan is not important; content is what counts.

Ans: F KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Writing a business plan is pure science, not an art.

Ans: F KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The most important section of a business plan is the executive summary.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. The executive summary is located at the beginning of the business plan and should be written first.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. When writing the company and industry section of the business plan, any setbacks or wrong turns should not be included.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 10. The goal of the marketing research section of the business plan is to convince readers that a market exists for the product/service and that the projected sales forecasts can be achieved.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Marketing objectives and strategies used to accomplish those objectives are included in the products/services section of the business plan.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The marketing plan section of the business plan stresses the manufacturing and operations plan that will be needed to produce the product.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. A successful management team combines people with complementary business knowledge, technical skills, and life experiences.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. A timeline does not need to be attainable; it need only show a general outline of when projects may be completed.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 15. The marketing plan section of the business plan is where alternative plans are established in case the unexpected should occur.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The most important financial statement for a small business is the cash-flow statement.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. If a new small business runs out of cash, thus having inadequate cash flow, it is out of business.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. A projected profit-and-loss statement should be 100 percent accurate in the future dollar amounts it states.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Information and documents critical to the business plan would be found in the appendix section of the business plan.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 20. Writing a business plan involves a long series of interrelated steps.

Ans: T KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. A common mistake made in writing business plans is for the small business owner to propose investing none of their own money in the business.

Ans: T KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Potential pitfalls and problems should be addressed in a well-written business plan.

Ans: T KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. A business plan says nothing about the level of financial and professional knowledge a potential small business owner has acquired.

Ans: F KEY: Learning Objective: 4.4: Discuss the importance of reviewing your business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.4: Review Process Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Customer segments refer to those for whom a product creates value.

Ans: T KEY: Learning Objective: 4.2: Explain the purpose and process of developing a business model.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.2: Business Models and Feasibility Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Identifying a business’s breakeven point is used to provide direction for that business.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Two good sources for guidance on writing business plans include a local SCORE chapter and a nearby college or university.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Financial data should never be included in a business plan’s executive summary.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. An environmental analysis should be completed after the industry analysis is complete.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 29. The 18- to 25-year-old female market is an example of a consumer demographic.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 30. Deciding whether to use a sales force or distributors involves using service policies as part of the marketing plan.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 31. The make-or-buy decision involves deciding what will be produced and what will be purchased in a manufacturing business.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Providing new technical skills and creating opportunities for career advancement provide human development benefits to a community.

Ans: T KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. To reinforce financial projections and establish benchmarks, it is important to compare projected financial ratios with GDP averages.

Ans: F KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Short Answer 1. Explain the three primary reasons that business plans are important.

Ans: to raise capital to provide direction to prove feasibility KEY: Learning Objective: 4.1: Explain the purpose and importance of the business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.1: Every Business Needs a Plan Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Describe why the executive summary is the most important section of the business plan.

Ans: explains the essential facts in a summary format captures the reader’s attention

Hatten, Small Business Management 7e SAGE Publishing, 2020 highlights critical information provides a brief overview of the entire business plan KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Describe and explain three major components of the business plan.

Ans: executive summary company and industry products or services marketing research and evaluation marketing plan manufacturing and operation plan management team timeline critical risk and assumptions benefits to community financial plan appendix KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. List four differing areas where a small business owner could receive help in writing a business plan.

Ans: A business planning guide Small Business Administration (SBA) Small Business Development Center Local chamber of commerce Local SCORE chapter and Local college or university KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. List and describe at least five marketing research and evaluation components to be included in a business plan.

Ans: target markets and market segmentation market trends competition market share marketing plan

Hatten, Small Business Management 7e SAGE Publishing, 2020 pricing as part of the marketing plan promotion as part of the marketing plan place as part of the marketing plan service policies as part of the marketing plan KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Describe at least three items that may be included in a financial plan within a business plan.

Ans: sources and uses of capital cash flow projections balance sheets profit-and-loss statements break-even analysis KEY: Learning Objective: 4.3: Describe the components of a business plan.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 4.3: Business Plan Contents Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 5: FRANCHISING Multiple Choice 1. The process of gathering and verifying the accuracy of information included in the franchise agreement and all other information provided by the franchisor is called ______. a. deductive reasoning b. preemptory investigation c. due diligence d. market research Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Through the franchise agreement, the ______ gains the benefit of the parent company’s expertise, experience, management systems, marketing, and financial help. a. franchisor b. franchisee c. leaser d. lessee Ans: B KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. A contractual license to operate an individually owned business as a part of a larger chain is known as a/an ______. a. franchise b. small business contract c. chain contract d. import contract Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. The parent company that develops a product or business process and sells the rights is known as the ______. a. franchisor b. franchisee c. company of origin d. opening company Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The small business person who purchases the franchise in order to sell the product or service is known as the ______. a. franchisor b. franchisee c. company of origin d. opening company Ans: B KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Franchises have experienced growth since the 1950s, although they have existed since the ______. a. late 1700s b. early 1800s c. late 1800s d. early 1900s Ans: B KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Samuel has decided to buy a small pretzel shop, where he will be expected to pay fees and royalties for exclusive rights to local distribution of pretzels made at the shop.

Samuel can best be described as a/an ______. a. franchisor b. franchisee c. CEO d. social entrepreneur

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 8. ______ and ______ were two of the first businesspeople to use exclusive agents, which laid the ground for today’s franchising. a. Ford; Hoover b. John Deere; Macy’s c. McDonald’s; Hilton d. McCormick; Singer Ans: D KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Today, franchising is represented in almost every industry, with more than ______ U.S. businesses being franchises. a. 225,000 b. 800,000 c. 2.5 million d. 25 million Ans: B KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Franchised businesses directly produce almost ______ jobs. a. 1 million b. 32 million c. 5 million d. 9 million Ans: D KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Product-distribution franchising involves licensing the use of its ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. trade name b. business format c. turnkey d. dealership Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Making products available to consumers in a specific geographic region is the purpose of ______ franchising. a. product-distribution b. business-format c. turnkey d. dealership Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. A type of franchise in which the franchisee agrees to purchase the products of the franchisor or use the franchisor’s name is called ______. a. product-distribution franchise b. business-format franchise c. dealership franchise d. logo franchise Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. A type of franchise in which the franchisee adopts the franchisor’s entire method of operation is known as ______. a. product franchising b. trade-name franchising c. business-format franchising d. dealership franchising Ans: C KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Business-format franchising is commonly used in which of the following? a. gasoline stations b. soft-drink bottlers c. car dealerships d. fast-food restaurants and lodging establishments Ans: D KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Tom has opened a Ford dealership, where he purchases vehicles from the Ford company and has full use of the Ford trade name, brand names, and logos to promote the dealership. Tom has engaged in what type of franchising? a. product distribution b. service distribution c. manufacturing-format franchising d. business-plan franchising Ans: A KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 17. While traveling across country over the summer, Gwen and Audrey stayed in wellknown, franchised accommodations rather than opting for independent, unknown motels. This example demonstrates which advantage to franchisees? a. efficiency b. financial assistance c. professional guidance d. proven product Ans: D KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 18. The greatest benefit to the franchisee is which of the following?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. proven product b. marketing expertise c. professional guidance d. efficiency Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Providing a source of managerial and technical assistance is an advantage to the franchisee that might not be available to an independent business owner. This is called ______. a. an opportunity to learn b. market expertise c. professional guidance d. controlled expansion Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Saving money on inventory needs, equipment, and supplies is an advantage for the franchisee that is called ______. a. recognized standards b. marketing expertise c. efficiency d. professional guidance Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. A McDonald’s hamburger that tastes the same at any location in the world is an example of which of the following benefits to the franchisee? a. recognized standards b. marketing expertise c. efficiency

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. professional guidance Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 22. A problem with the cost of purchasing a franchise is that the franchisee is usually required to raise most of the capital ______. a. before beginning operations b. within one month of beginning operations c. within six months of beginning operations d. within one year of beginning operations Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Because customers view franchises as an entire unit, which of the following can have a negative effect on a franchisee’s business? a. overdependence or unsatisfied expectations b. risk of fraud or misunderstanding c. problems of termination or transfer d. poor performance of other franchisees Ans: D KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. From the perspective of the ______, the biggest advantage is the expansion of distribution sources with limited equity investments. a. customer b. employee c. franchisor d. franchisee Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Other franchises under the same franchisor can detrimentally affect a franchise by ______. a. tolerating substandard performance b. opening a new franchise in another market c. setting higher standards d. not making a profit Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. A statement in the franchise agreement that states that the franchisee must decline to continue the agreement before the franchisor can offer the franchise to someone else is called a ______. a. right of discontinuance b. privilege of rescission c. right of first refusal d. right of denial Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. From the perspective of the franchisor, the biggest advantage of offering franchises is the ______. a. expansion with limited equity investments b. multiple sources of revenue c. level of control of expansion d. bulk purchasing Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 28. Franchising may be the only viable way for which of the following to expand? a. sole proprietorships b. businesses with limited capital c. businesses wishing to enter international markets d. partnerships Ans: B KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. In comparison with expansion of a corporate chain, expanding via franchise can be accomplished with a/an ______ management structure. a. simpler b. equally complex c. slightly more complex d. highly complex Ans: A KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Which of the following can significantly reduce costs for a franchisee and thus increase profit margins? a. controlled expansion b. franchise fees c. bulk purchasing d. advertising costs Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. The biggest disadvantage to the franchisor is which of the following? a. profit sharing b. disputes with franchisees

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. loss of control d. communication breakdowns Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Which of the following is a way in which franchisors have adapted products to meet the changing needs of customers? a. multiproduct shelving b. corporate displays c. establishing company-owned stores d. family branding Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 33. Franchisors can achieve economies of scale as a result of which of these? a. multiple sources of revenue b. controlled expansion c. motivated franchisees d. bulk purchasing Ans: D KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. The major trade association of franchising is the ______. a. International Franchise Association b. American Franchisee Association c. American Association of Franchisees and Dealers d. Global Franchise Association Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. The International Franchise Association publishes ______ annually, which gives requirements, expectations, and assistance capabilities for each franchise. a. The Franchise Handbook b. Current Franchises in Business c. Potential Franchise Opportunities d. The Franchisee Guide to Selecting a Franchise Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. The American Association of Franchisees and Dealers (AAFD) has developed a ______ as a code of ethical business conduct for franchised businesses. a. franchisee bill of rights b. franchisor code of conduct c. franchisee constitution d. franchisor disclosure statement Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Ethical understanding and reasoning 37. A priceless source of information about a prospective franchise that cannot be obtained from trade associations or from the franchisor can come from which of the following? a. legal records b. current and former franchisees c. the franchisor d. current customers Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Franchisors are required by the ______ to provide disclosure statements to prospective or actual franchisees. a. North American Free Trade Agreement

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. Uniform Commercial Code c. National Labor Relations Act d. Federal Trade Commission Ans: D KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Information that franchisors are required to provide to potential franchisees is contained in which of the following documents? a. franchise agreement b. purchasing contract c. disclosure statement d. profit-and-loss statement Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Identification of risks, fees, benefits, and restrictions of operating a franchise would be included in the ______. a. disclosure statement b. franchise agreement c. franchise contract d. purchase agreement Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Alicia is considering opening a popular pizza franchise. Before she makes her final decision, she contacts the company and obtains a document that outlines the risks, fees, benefits, and restrictions of owning the franchise. This document is known as a ______. a. financial statement b. contract c. franchise agreement d. disclosure statement Ans: D KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 42. A disclosure statement should include a description of the lawsuits in which the franchisor and its officers, directors, and management personnel have been involved, also known as ______. a. litigation b. justification c. intellectual property d. legal obligations Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Whether a franchise is required to carry the full line of the franchisor’s products or whether additional product lines can be added would fall under the ______ section of the disclosure statement. a. purchase obligations b. product or service restrictions c. personal participation of franchisees d. exclusive territory Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. Franchisees have recently alleged that the franchisor has overlapped franchise areas. This is a breach of ______. a. termination of the franchise agreement b. due diligence c. the exclusive territory rights d. franchise fees Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 45. In the section of the disclosure statement titled “Information about franchisees,” the franchisor must provide the names and addresses of all franchisees located in which proximity to the prospective franchisee? a. city b. county c. state d. region Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. The legal contract that binds both parties involved in the franchise is known as the ______. a. franchise agreement b. disclosure statement c. contract d. business obligation Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. Some franchise agreements specifically require the franchisee to have a percentage of the total franchise fee from which of the following? a. a venture capitalist b. a nonborrowed source c. an accredited bank d. the Small Business Administration (SBA) Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. The one-time payment made to become a franchisee is called a/an ______. a. franchise agreement b. franchise fee c. royalty fee d. initial investment fee Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. The ongoing payments that franchisees pay to franchisors--which is usually a percentage of gross sales--is known as a/an ______. a. franchise agreement b. franchise fee c. royalty fee d. initial investment fee Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. Royalty fees are calculated as a percentage of ______. a. gross sales b. gross profit c. net profit d. pretax revenue Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. Before Walter can officially become a franchisee of an auto repair shop, he must first sign a document that defines the precise, detailed conditions of the legal relationship between the franchisee and the franchisor. This document is referred to as the ______. a. forced contract b. franchise agreement c. disclosure statement d. due diligence statement Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 52. Before she could open her franchised hair salon, Lori knew she had to pay a onetime fee of $10,000 to the franchisor. This one-time fee is known as the ______. a. franchise fee b. industry fee c. royalty fee d. due diligence fee Ans: A KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 53. Most franchise contracts run ______. a. indefinitely b. from 1 to 5 years c. from 15 to 20 years d. from 5 to 15 years Ans: D KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. Before signing a franchise agreement, a franchisee should make sure that the franchisor must show ______ to terminate the contract. a. real cause b. due diligence c. good cause d. cause clause Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 55. Which of the following sections in the franchise agreement contains information on rights of first refusal, advertising restrictions, and performance quotas? a. termination of the franchise agreement b. terms and renewal of the agreement c. exclusive territory d. franchise, advertising, and royalty fees Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking NARRBEGIN: 5-1 Scenario 5-1. Connie is considering opening a small bakery called Connie’s Cookie Cupboard. She loves to bake cookies. Family and friends have told her she should consider opening a small business using her baking skills. Connie has no business experience and no idea where to start in opening her own business. She also has very few funds available. One day she is glancing through the newspaper and notices an ad for a bakery franchise that would like to open an outlet in the local mall. This franchise provides everything from equipment to packaging to full business services. She decides to look into the opportunity further.

NARREND 56. In Scenario 5-1, which of the following would be the major disadvantage for Connie in purchasing a franchise? a. potential for business growth b. restrictions on her freedom and creativity c. marketing expertise d. quality control standards Ans: B KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-1 57. In Scenario 5-1, which of the following types of franchises is the bakery franchise? a. product franchising b. business-format franchising c. service franchising d. joint venture Ans: B KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-1 58. In Scenario 5-1, which of the following advantages from the franchisor would benefit Connie the most?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. quality product b. efficiency c. professional guidance d. an opportunity to learn Ans: C KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-1 NARRBEGIN: 5-2 Scenario 5-2. Connie is considering opening a small bakery called Connie’s Cookie Cupboard. She loves to bake cookies. Family and friends have told her she should consider opening a small business using her baking skills. Connie has no business experience and no idea where to start in opening her own business. She also has very few funds available. One day she is glancing through the newspaper and notices an ad for a bakery franchise that would like to open an outlet in the local mall. This franchise provides everything from equipment to packaging to full business services. She decides to look into the opportunity further.

Connie decides to pursue her franchise opportunity further. The bakery franchise looks promising. Since she has a limited amount of funds, no business experience, and no idea how to start a new business, she is seriously considering purchasing the bakery franchise located in the local mall. She obtains a copy of the document that will legally bind her.

NARREND 59. In Scenario 5-2, the document that she is carefully considering is the ______. a. franchise legal contract b. franchise agreement c. business contract d. partnership agreement Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-2 60. In Scenario 5-2, as Connie is reading through the agreement, she sees that a percentage of her gross sales will be paid to the franchisor. These are called ______. a. franchise fees b. royalty fees

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. advertising fees d. operation fees Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-2 61. In Scenario 5-2, Connie is concerned that the bakery franchise did not open other outlets within 10 miles of the mall. She is concerned about ______. a. termination of the franchise agreement b. exclusive territory c. terms and renewal of the agreement d. mutual territory Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-2 62. In Scenario 5-2, after reading through the agreement, everything seems clear to Connie. Is there anyone else she should have read the agreement? a. her friends at work b. her CPA and lawyer c. her friends and a lawyer d. her friends and her CPA Ans: B KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-2 63. In Scenario 5-2, the FTC requires all franchisors to provide which of the following for potential franchise owners? a. statements of information b. income statements c. disclosure statements d. franchise statements Ans: C KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 5-2

True/False 1. A disadvantage of the direct ownership system used by early manufacturers in the 1830s like McCormick and Singer was the lack of direct control and control over quality levels.

Ans: F KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Franchising dominates the quick-service restaurant segment of the U.S. economy.

Ans: T KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. McCormick and Singer were two of the first franchises in America during the 1800s.

Ans: T KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Franchised businesses directly produce almost 6 million jobs.

Ans: F KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Making products available to consumers through exclusive dealers in a specific geographic region is the purpose of product-distribution franchising.

Ans: T KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Product-distribution franchising is commonly used in fast-food restaurants and lodging establishments, such as hotel and motel chains.

Ans: F KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. In comparison to business-format franchising, product-distribution franchising is more of a turnkey approach to franchising.

Ans: F KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 8. The biggest advantage of franchising for a franchisee is the marketing expertise that is provided.

Ans: F KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Some franchisors prefer that their franchisees not have experience in the particular field of the franchise.

Ans: T KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Franchisors seldom provide financial resources for startup and working capital for inventory.

Ans: F KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The primary drawback of franchising to the franchisee is that you must give up some control, some decision-making power, and some freedom.

Ans: T KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. One advantage of franchising to the franchisee is that it is relatively easy to terminate a franchise agreement if things are not going well.

Ans: F KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. If a franchisee feels that a product, promotion, or policy may not be appropriate for his/her area, the franchisee can decide to not participate.

Ans: F KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 15. A right of first denial states that a franchisee must decline continuing a franchise agreement before the franchisor can offer the franchise to someone else.

Ans: F KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. From the perspective of the franchisor, one of the biggest advantages of offering franchises is the expansion of the business happening much faster than if the franchisor were in business alone.

Ans: T KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Franchisors often have several sources of income built into franchise agreements, including franchise fees, operating revenue percentages, and product/supplies revenues.

Ans: T KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. One way in which franchisors have dealt with the complexity of serving differing customer tastes covering large geographic areas is through company owned franchises.

Ans: T KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 19. The American Franchisee Association is a trade association that provides information and services about franchising.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. When individuals have a general idea of the franchise that they are interested in, they should contact the company and ask for a copy of its disclosure statement.

Ans: T KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. A good question to ask concerning a potential franchise purchase is whether or not the franchise gives exclusive territory for the length of the agreement.

Ans: T KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Because franchisors have lawyers look over the franchise agreement, it is not necessary for a franchisee to pay a lawyer to do the same thing.

Ans: F KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. A potential franchisee may receive only partial use of trademarks, trade names, logos, and other symbols as detailed in the disclosure statement.

Ans: F KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 24. Royalty fees that are paid to the franchisor are usually calculated as a percentage of gross profits.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 25. If an advertising fee is charged to a franchisee, the franchisor is required by law to spend a percentage of the collected fees in the franchisee’s market.

Ans: F KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 26. Franchise agreements are currently written in simple enough language that a lawyer need not be contacted before signing a franchise agreement.

Ans: F KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Over the past 25 years, the wording within disclosure statements has gradually become more “legalese” and complex.

Ans: F KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. The issue of exclusive territory is the subject of much controversy in the franchising world.

Ans: T KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Describe the two types of franchising systems, explain how they differ, and give an example of each.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: product-distribution franchising allows franchisee to buy products or use the trade name connects a single supplier with many dealers throughout a specific geographic region an example would be Ford dealerships business-format is a turnkey approach franchisors sell the products as well as the entire way of doing business, including operation procedures, marketing packages, buildings and equipment, and full business services an example would be Holiday Inn KEY: Learning Objective: 5.1: Explain what a franchise is and how it operates.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.1: About Franchising Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. List and describe three major advantages of franchising for the franchisee.

Ans: proven product efficiency marketing expertise potential for business growth professional guidance recognized standards opportunity to learn KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. List and describe three major disadvantages to the franchisee when considering franchising.

Ans: cost of the franchise restrictions on freedom or creativity risk of fraud or misunderstanding problems of termination or transfer poor performance of other franchises KEY: Learning Objective: 5.2: Compare the advantages and disadvantages of franchising.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.2: Why Open a Franchise?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. After finding a franchise that a small business owner would consider purchasing, discuss three questions that should be asked.

Ans: Did the lawyer approve the contract?

Is everything legal in the state, county, and city?

Is exclusive territory included?

Is the franchise involved with any other franchise companies handling similar merchandise or services?

How can the franchise be terminated?

If the franchise is sold, will goodwill be compensated?

KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. List at least three questions that individuals should ask themselves to determine whether franchising is the appropriate route to small business ownership.

Ans: How much equity capital will you need to purchase the franchise and operate it until your income equals your expenses?

Are you prepared to give up some independence of action to secure the advantages offered by the franchise?

Do you really believe you have the innate ability, training, and experience to work smoothly and profitably with the franchisor, employees, and customers?

Are you ready to make a long-term commitment to working with this franchisor?

KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. When considering a franchise, list at least three questions that should be considered to analyze the market in which the franchise will be operating.

Ans: Does the product or service have a market in your territory at the prices that you will have to charge?

Will the population in your proposed territory increase, remain static, or decrease over the next five years?

Will the product or services you are considering be in greater demand, in about the same demand or in less demand five years from now?

What competition already exists in your territory for the product or service you contemplate selling?

KEY: Learning Objective: 5.3: Explain how to evaluate a potential franchise opportunity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 5.3: Selecting a Franchise Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 6: TAKING OVER AN EXISTING BUSINESS Multiple Choice 1. Buying an existing business looks appealing to the potential business owner for which of the following reasons? a. The existing firm is already functioning. b. The existing firm will always make a profit. c. The existing firm will have the best employees. d. The existing firm’s owner will always provide financing.

Ans: A KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. A disadvantage to buying an existing business is which of the following? a. Image is difficult to change. b. Customers are familiar with the location. c. The employees are experienced. d. Inventory and equipment is in place.

Ans: A KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. An advantage in purchasing an existing business is which of the following? a. Image is difficult to change. b. There is an established customer base at the present location. c. Employees may be loyal only to previous management. d. The business location is unfamiliar.

Ans: B KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. According to the text, there are ______ thousands of small businesses for sale at any given time. a. tens of b. hundreds of c. thousands of d. a few Ans: A KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Benjamin has recently received a large estate settlement, and he is eager to use the money toward the purchase of a successful business that is already in operation. Which of the following should be discouraged as a source for finding businesses for sale? a. friends b. business owners themselves c. real estate brokers d. phonebook Ans: D KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 6. Within his profession, Alex Wilson serves as an intermediary that brings sellers of businesses together with potential buyers. Alex can best be described as a/an ______. a. real estate manager b. financial broker c. management broker d. business broker Ans: D KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 7. Many good business opportunities are never formally advertised. Instead, that information is found through which of the following? a. the local banker b. the local college c. word of mouth d. the Small Business Administration (SBA)

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Family, friends, the newspaper, the Small Business Administration (SBA), a local banker, and real estate brokers may all have information on ______. a. possible sources of funding b. possible businesses for sale c. possible businesses soon to be terminated d. possible venture capitalists Ans: B KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. A business that brings sellers of their businesses together with potential buyers is known as ______. a. a real estate broker b. the Small Business Administration (SBA) c. a business broker d. the FTC Ans: C KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. A list of liabilities of an existing business would include ______. a. a list of accounts receivable b. an inventory of products and materials c. liens by creditors against any assets d. a list of accounts payable Ans: C KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 11. Tabitha is considering the purchase of a seemingly successful retail establishment, but first she would like to gain an understanding of why the business is being sold. With whom should she speak? a. the current owner only b. the current owner and customers only c. customers and suppliers only d. the current owner, customers, and suppliers Ans: D KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 12. To determine the financial condition of an existing business, it is necessary to compare ______ with ______ to identify where costs can be reduced or more money is needed. a. operating ratios; fiscal averages b. operating ratios; industry averages c. expense ratios; fiscal averages d. expense ratios; industry averages Ans: B KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 13. What of these is used to indicate whether sales volume is increasing or decreasing? a. financial records b. independent audit c. expense ratio d. working capital statement Ans: A KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 14. When analyzing financial statements, remember that profits can be increased and expenses can be decreased to make the records look better ______. a. in the short run

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. in the long run c. for tax purposes d. for bank audits Ans: A KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 15. Before any serious discussion of purchasing a business occurs, a/an ______ should be conducted. a. financial ratio analysis b. income statement analysis c. independent audit d. IRS review Ans: C KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. To ensure that all back taxes have been paid, a potential buyer should inspect ______. a. unaudited financial documents b. income tax returns c. the seller’s books d. loan agreements Ans: B KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Financial information can be sensitive information. In order to allay the fears of the seller, a potential buyer could ______. a. not ask to see financial information b. only show the information to an accountant c. only show the information to a banker d. write a letter of confidentiality Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 18. Industry-wide ______ ratios are calculated by most trade associations, many commercial banks, and accounting firms. a. asset b. expense c. quality d. stock Ans: B KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The financial statements can provide access to ______, a very important piece of information for a prospective buyer to use in determining net profit. a. sales volume b. net assets c. gross assets d. accounts payable Ans: A KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Industry averages for expense ratios comparing expenses to ______ exist for every size and type of business. a. profits b. assets c. liabilities d. sales Ans: D KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Expense ratios are useful because they are ______. a. standards or guides b. absolute measures of profitability c. significant in the number that is computed d. error free Ans: A KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. To effectively use operating ratios, a prospective buyer should ______. a. compare them to industry standards b. use them to identify problems that exist and make changes c. use them as a basis for valuing the business d. compare them to the closest competitor Ans: B KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The prospective buyer should determine a price for the business by adding the value of tangible and intangible assets with the ______ potential. a. sales b. expenses c. income d. profit Ans: D KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Assets that a business owns that can be seen and examined are known as ______. a. intangible assets b. tangible assets

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. long-term equity d. accounts payable Ans: B KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Inventory, equipment, and building are examples of what kinds of assets? a. intangible assets b. tangible assets c. only current assets d. only long-term assets Ans: B KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Trade names, customer lists, and goodwill are examples of which kinds of assets? a. intangible assets b. tangible assets c. only current assets d. only long-term assets Ans: A KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Of all the tangible assets of a business, ______ and ______ should be examined most closely because they may be worth less than the seller is asking. a. inventories; equipment b. receivables; inventory c. equipment; receivables d. inventories; receivables Ans: A KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Along with purchasing a successful ice cream shop, Wilma acquired the building, as well as ice cream making equipment and enough inventories to operate for a month.

These are best known as what type of assets? a. short-term assets b. tangible assets c. long-term assets d. intangible assets Ans: B KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 29. Aging accounts receivable refers to the process of ______. a. determining their present value b. determining their effect on sales c. determining how many are still collectible and discounting them accordingly d. determining future customer lists Ans: C KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 30. When evaluating the worth of the inventory for purchasing purposes, the primary concern should be ______. a. whether enough inventory is currently stocked b. good supplier relationships c. no “dead stock” that is listed at its original value d. fresh inventory Ans: C KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 31. Which of the following by itself could be a reason a business owner wants to sell a business? a. inventory that is fresh and balanced b. accounts receivable that are 60 days old or older c. the outlived usefulness of equipment d. accounts receivable that are 30 days old or older Ans: C KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Assets that have value to a business but are not visible are known as ______. a. intangible assets b. tangible assets c. long-term assets d. current assets Ans: A KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. The intangible asset that allows a business to earn a higher return than a comparable business might generate with the same tangible assets is known as ______. a. intangible assets b. tangible assets c. preferred merchandise lines d. goodwill Ans: D KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. Few businesses that are for sale have a high amount of ______ value. a. current asset b. long-term asset c. goodwill

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. equipment Ans: C KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Intellectual property is a valuable ______. a. intangible asset b. tangible asset c. goodwill asset d. current asset Ans: A KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. Patents, copyrights, and trademarks protect against unauthorized use or infringements for which of the following time periods? a. indefinitely b. for an unknown time period c. five to seven years d. for a definite time and usage period Ans: D KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. A provision that restricts the seller from entering the same type of business within a specified area for a certain amount of time is known as ______. a. due disclosure b. a good cause clause c. a noncompetitive clause d. just disclosure Ans: C KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Rob is selling a business with machinery that has been protected from unauthorized use or infringement for the next three years. What type of intangible asset does this involve? a. goodwill b. trademark c. patent right d. copyright Ans: C KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 39. Samantha was in the final stages of selling her existing business, but she backed out of the deal at the last minute because the buyer asked her to sign a contract stating that she would not enter into a similar business within the state for at least 15 years.

This is an example of ______. a. a reasonable intellectual property contract b. an unreasonable intellectual property contract c. a reasonable noncompete clause d. an unreasonable noncompete clause Ans: D KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 40. A method of determining the value of a business based on the worth of its assets is called ______. a. balance sheet method of business valuation b. asset method of business valuation c. income statement method of valuation d. cash-flow method of valuation Ans: A KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 41. A method of determining the value of a business based on its profit potential is known as a/an ______. a. balance sheet method of business valuation b. asset method of business valuation c. income statement method of valuation d. cash-flow method of valuation Ans: C KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 42. ______ is a current value for a company’s long-term future cash flows. a. Future value b. Dead value c. Discount value d. Terminal value Ans: D KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 43. The worth of tangible assets is determined using which of the following methods? a. balance sheet method of business valuation b. asset method of business valuation c. income statement method of valuation d. cash-flow method of valuation Ans: A KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 44. The most realistic approach for the buyer in determining the value of tangible assets is through ______. a. book value b. replacement value c. liquidation value d. balance sheet valuation Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 45. Goodwill can be seen as compensation to the seller for which of the following? a. beginner’s mistakes that the new owner will not have to make b. tangible assets c. sales potential d. customer lists Ans: A KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. The difference between the purchase price of a company and the net value of the tangible assets is called ______. a. asset value b. profit c. goodwill d. liquidation value Ans: C KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 47. The capitalization rate when figuring goodwill should be a figure assigned to show ______. a. risk and expected growth rate of future earnings b. risk and profit minus taxes c. expected growth rate and profit d. expected growth rate and the value of tangible assets Ans: A KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 48. The most practical method of paying for a business is ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. paying a lump-sum b. paying in installments c. a loan from the bank d. a loan from the Small Business Administration (SBA) Ans: B KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 49. Using installment payments to finance a new business ensures that the business is paid for through ______. a. a loan b. sales c. earnings d. the valuation of tangible assets Ans: C KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 50. When the buyer and the seller have agreed on the terms of the sale, the closing can be handled by ______. a. an accountant b. the buyer and seller themselves c. escrow settlement d. a nonpartial third party Ans: C KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 51. A settlement attorney during a closing represents ______. a. the buyer b. the seller c. the buyer and the seller d. neither--the lawyer is a neutral third party Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. In purchasing an existing business, Alice has decided to lease the equipment and fixtures from the original owner rather than purchasing it outright to save money initially.

This is an example of ______. a. holdback money b. thinning the assets c. escrow settlement d. goodwill Ans: C KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 53. To protect yourself from unknown tax liabilities when buying the stock of a business, it makes sense to place part of the purchase price in an escrow account that is earmarked to pay for any corporate liabilities. This is referred to as ______. a. holdback money b. thinning the assets c. escrow settlement d. goodwill Ans: C KEY: Learning Objective: 6.6: Discuss factors that are important when finalizing the purchase of a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.6: Buying the Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. Stan owns a body shop, and his cousin recently came to him desperate to get a job.

Stan, who is not currently looking to hire anyone, is concerned about the effect of a new hire on profits. This concern stems from which family business perspective? a. family b. ownership c. marketing d. external Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 55. Which of the following types of business are characterized by two or more members of the same family who control or are directly involved in and own a majority of the business? a. sole proprietorships b. partnerships c. corporations d. family-owned businesses Ans: D KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. A unique factor in a family business that makes it different from all other businesses is ______. a. the profit margin b. the asset ownership c. the sales potential d. the intricate succession planning needed Ans: D KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. Which of the following is a guideline that should be followed in a family business? a. to be hired, family members must meet more stringent criteria than nonfamily members b. family members should be supervised by older family members whenever possible c. family members should stay in entry-level positions indefinitely d. family members must meet the same standards as nonfamily members in performance reviews Ans: D KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 58. The longer it takes someone to pay their account receivable, the less likely they are to ______. a. ever pay the account b. make repeat purchases c. make a profit d. become a bad debt expense Ans: A KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 6-1 Scenario 6-1. Jerry Jones is a young entrepreneur straight out of college. After taking a course in Small Business Management, Jerry has decided that he would like to purchase an existing business and hopefully avoid some beginner’s errors. He spends some time looking and finally finds a business that appeals to him, a small sporting goods store. Jerry loves to fish and hunt. The store currently has a huge inventory in place. Jerry decides to pursue purchasing the business further.

NARREND 59. In Scenario 6-1, which of the following would have been a good source of information on current businesses that are for sale that is often overlooked? a. newspapers b. place of current employment c. word of mouth through family, friends, and current business acquaintances d. business brokers Ans: C KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 6-1 60. In Scenario 6-1, since the sporting goods store has a huge inventory, Jerry needs to be familiar with which of the following codes? a. code of ethics b. code of inventory purchasing

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. Uniform Commercial Code d. inventory commercial code Ans: C KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking

NAR: 6-1 True/False 1. Existing businesses do not have to be scrutinized carefully to determine whether they are a worthwhile investment of time and money.

Ans: F KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The fact that a business’s image is difficult to change is a distinct advantage when taking over an existing business.

Ans: F KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Buying an existing business is becoming a more popular way to own a small business.

Ans: T KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. A major advantage of purchasing an existing business is that the customers are familiar with the location.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. If an existing business is purchased, the buyer may be potentially liable for past business contracts.

Ans: T KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Having an established supplier relationship is an advantage of buying an existing business.

Ans: T KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. When the owner of a business decides to sell, the reasons the owner tells prospective buyers may be somewhat different than the actual reasons.

Ans: T KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Word-of-mouth information through friends and family may turn up business opportunities that do not appear through formal channels.

Ans: T KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 9. Real estate brokers may be a good source of potential businesses for sale since their listings may include business real estate.

Ans: T KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Asking the owner of a business where you have been a regular customer whether the business is for sale may be one source of finding a potential new business.

Ans: T KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. You should never ask the owners of a business where you are a customer whether they are interested in selling their business.

Ans: F KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Brokers take classes and pass examinations to become certified business intermediaries.

Ans: T KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. It is important not to let emotions cloud judgment when making business purchase decisions.

Ans: T KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. Due diligence is the process of fact finding to determine the total condition of a business being considered for purchase.

Ans: T KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. When discussing the purchase of an existing business, it is not necessary to get verbal understandings in writing from the seller.

Ans: F KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. When analyzing the financial statements of the business, it is important to rely most heavily on the most recent year of operation.

Ans: F KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. There are not as many factors that could contribute to the sale of a business as there are reasons for business liquidations.

Ans: F KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Industry averages exist comparing expenses to sales for every size and type of business.

Ans: T KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Determining the price offered for a business should begin by adding the value of the tangible and intangible assets with the sales potential of the business.

Ans: F KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. A key factor in business valuation is review of what other companies in the industry have sold for.

Ans: T KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Goodwill is an example of a tangible asset.

Ans: F KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Inventory is an example of a tangible asset.

Ans: T KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. When purchasing a business, the people working there can be disregarded since they will probably not stick around after the business is in new hands.

Ans: F KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. An income statement method of business valuation focuses more on cash flow than asset value.

Ans: T KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Discounted cash-flow analysis consists of projecting future cash flows after debts are subtracted and before taxes are paid.

Ans: F KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 26. Goodwill is the term used to describe the difference between the purchase price of a company and the net value of the tangible assets.

Ans: T KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. The value of a business’s intangible assets is easy to determine.

Ans: F KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Tangible assets are the product of a firm’s past earnings and the basis on which future earnings are projected.

Ans: F KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Family businesses make up 70 percent of all businesses in the United States and comprise nearly 50 percent of the nation’s GDP. Ans: T KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. The amount paid for goodwill should be small enough to be recovered with new profits in a reasonably short time period.

Ans: T KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. When running a family business, there are four overlapping perspectives on its operations: family, management, ownership, and sales.

Ans: F KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. About half of all family businesses survive through the second generation.

Ans: F KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. When a family member enters the family business, he or she is immediately accepted by nonfamily employees due to his/her position.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. List and describe two advantages and two disadvantages of buying an existing business.

Ans: Advantages customers know the product and the location a means to avoid at least some “beginner’s mistakes” planning can be based on historical data, not projections inventory and equipment is in place experienced employees Disadvantages the image will be difficult to change employee loyalty obsolete inventory and equipment undesirable location potential liability for past business contracts KEY: Learning Objective: 6.1: Compare the advantages and disadvantages of buying an existing business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.1: Business-Buyout Alternative Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe three places a potential small business owner might go when looking for a business for sale.

Ans: current employment ∙ Small Business Administration (SBA) ∙ newspaper advertising business broker friends and family bankers, lawyers, and accountants a business where they have been a customer KEY: Learning Objective: 6.2: Propose ways of locating a suitable business for sale.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.2: How Do You Find a Business For Sale?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Analyze three areas that should be researched when deciding whether or not to purchase an existing business.

Ans: location

Hatten, Small Business Management 7e SAGE Publishing, 2020 consider why the present owner is selling be skeptical of all information obtained look at traffic patterns look at the existing employees analyze the competition look at the profit record analyze the suppliers consider how long the business has existed consider whether the equipment is in good condition KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.3: What Do You Look for in a Business?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Discuss three major considerations when looking at the financial condition of an existing business.

Ans: analyze the profit trend consider working capital have an independent audit performed calculate expense ratios consider debt/leverage consider the firms’ fixed assets take into account owner’s tangible net worth KEY: Learning Objective: 6.3: Explain how to measure the condition of a business and determine why it might be offered for sale.

REF: Cognitive Domain: Comprehension Answer Location: Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Compare and contrast tangible assets and intangible assets.

Ans: tangible assets inventory, equipment, and buildings easier to place a value upon through book value, replacement value, and liquidation value inventory and equipment should be valued most closely because they may be outdated intangible assets goodwill, preferred merchandise lines, favorable leases, patents, and copyrights difficult to place a value upon using income statement method of valuation, rate of capitalization adds value to the business KEY: Learning Objective: 6.4: Differentiate between tangible and intangible assets, and assess the value of each.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.4: What Are You Buying?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Before serious bargaining can begin, it is necessary to determine the value of several key physical assets. List at least three of these assets.

Ans: inventory equipment minus depreciation supplies accounts receivable market value of the building KEY: Learning Objective: 6.5: Calculate the price to pay for a business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.5: How Much Should You Pay? Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. List at least three guidelines that should be followed in a family business.

Ans: To be hired, family members must meet the same criteria as nonfamily members.

Family members should be supervised by nonfamily members whenever possible.

No family member can stay in an entry-level position indefinitely.

Family members must meet the same standards as nonfamily members in performance.

If family members are younger than age 30, they are only eligible for “temporary employment.”

All positions will be compensated at fair market value.

For family members seeking permanent employment, they must have at least five years’ experience outside the company.

KEY: Learning Objective: 6.7: Describe what makes a family business different from other types of businesses.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 6.7: Taking Over a Family Business Difficulty Level: TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 7: STARTING A NEW BUSINESS Multiple Choice 1. Which of the following increases when beginning a new business rather than buying an existing business? a. frustration b. income c. risk d. profit potential Ans: C KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.1: About Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. No matter what type of business a person is starting, the most important resource is ______. a. capital b. assets c. experience d. time Ans: D KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. In the beginning of a new business, the only thing the new business person has is ______. a. vision b. capital c. assets d. a customer base Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. Wanda has dreams of opening her own pet shop called “Wanda’s Aquarium”. Aside from think of a name and how her store will look, she has done very little planning at this very early stage. All she currently has is ______. a. a strategy b. financial means c. an objective d. a vision Ans: D KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 5. The risk of failure is greater with ______. a. existing businesses b. franchises c. startups d. existing family-owned businesses Ans: C KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.1: About Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. A business that is more dependent on the services of people than on money and equipment is known as ______. a. a labor-intensive business b. a capital-intensive business c. a service-intensive business d. an asset-intensive business Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. A business that depends greatly on equipment and capital for its operations is known as ______. a. a labor-intensive business

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. a capital-intensive business c. a service-intensive business d. an asset-intensive business Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Service businesses are more ______. a. labor intensive b. capital intensive c. service intensive d. asset intensive Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Manufacturing businesses are more ______. a. labor intensive b. capital intensive c. service intensive d. asset intensive Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Which of the following is likely to be the most capital intensive? a. a Four Seasons Hotel b. a Ford manufacturing facility c. a Burger King Restaurant d. a medium-sized university Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 11. E-commerce accounts for approximately what percentage of total retail sales? a. less than 1 percent b. 9 percent c. 15 percent d. over 20 percent Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Information technology 12. The primary advantages of operating a home-based business are which of the following? a. schedule flexibility and lack of commuting problems b. low overhead and an increase in creativity c. lack of commuting problems and less office expense d. schedule flexibility and low overhead Ans: D KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Most fast-growth companies are started by ______. a. sole proprietorships b. partnerships c. corporations d. home-based businesses Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. A majority of high-growth CEOs had at least ______ years of experience in the industry.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. two b. five c. seven d. ten Ans: D KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Most high-growth firms are in which industry? a. high-tech b. utilities c. health care d. entertainment Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Information technology 16. Which of the following has the qualities of being attractive, durable, and timely and is anchored in a product or service that creates or adds value for its buyer? a. an idea b. a business opportunity c. a new product d. an improved product Ans: B KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Many ideas for new products or businesses do not add value for the customer or user and consequently are not ______. a. profitable b. business opportunities c. economically viable in the long run d. worthwhile investments Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. The most common exit strategy for fast-growth businesses is ______. a. passing on to family owners b. selling to outside investors c. selling to employees d. ending in bankruptcy Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Go Computers is an example of ______. a. a business that was very profitable b. a business that would make a good investment c. an idea that was ahead of its market d. an idea that was behind its market Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Information technology 20. Years before the regular use of iPads and tablet computers, the concept of portable, pen-based computers was introduced. However, Go Computers sold only 20,000 units and lasted only three years. This is an example of an idea that ______. a. has a long product life cycle b. has passed its window of opportunity c. is in demand by consumers d. is too far ahead of the market Ans: D KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking 21. During the ______ stage in the product life cycle, the window of opportunity is wide open because little or no competition exists. a. introduction b. growth c. maturity d. decline Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. A period of time in which an opportunity is available is known as ______. a. a window of opportunity b. an idea c. the right time for a product d. the introductory stage Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The stages that products in the marketplace go through are known as ______. a. the product life cycle b. the product growth stages c. the product timeline d. the product opportunity stages Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Which of the following questions can give a potential business owner insight on future and current demand? a. Does the idea solve a consumer’s want or need? b. How much competition exists?

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. Can the idea be turned into a profitable business? d. Does the business owner have the appropriate skills needed in order to be successful?

Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The final answer to whether an idea is an opportunity that should be followed will come from a combination of ______. a. research and a consultant’s advice b. intuition and experience c. research and intuition d. the banker and the accountant Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Which of the following is a source for business ideas that results in avoiding many errors and establishing competitive advantages early on? a. hobbies b. personal interests c. prior work experience d. education Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Opportunities that become available to a small business owner only after the small business owner has started a business are known as ______. a. windows of opportunity b. an idea whose time has come c. the corridor principle d. secondary opportunities Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. After running a small restaurant for two years, Pam and Jim realized that a greater opportunity existed in food distribution. They hired family members to run the restaurant while they focused their energy on starting a food distribution company. This is an example of the ______. a. distributive responsibility principle b. corridor principle c. experience curve d. bell curve Ans: B KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 29. Which of the following provides the greatest percentage of business ideas to prospective business owners? a. consultants b. conferences c. competitors d. social networking sites Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Jeff, an avid angler, decided to retire early to pursue a career of making and selling custom handmade fishing flies and lures. This is an example of identifying business ideas from ______. a. prior work experience b. hobbies and avocations c. serendipity d. ambition Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Ideas occur to small business owners almost ______ as often after the business is running than before the business began. a. twice b. three times c. four times d. ten times Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. A possibility that a person should consider when deciding upon an idea for a business is to focus on an idea provided through ______. a. research b. education c. hobbies d. a local banker Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Finding something valuable that was not looked for is known as ______. a. accidental discovery b. stumbling upon a treasure c. serendipity d. surreptitiousness Ans: C KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 34. Which of the following questions addresses the most critical concern in beginning a new business? a. Can I find skilled employees to hire? b. Will I make a profit? c. Who is my target market? d. Is there a need for this business?

Ans: D KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. When considering startup costs, there will be many expenses that are not expected.

It is wise to add an additional ______ to help cover those unexpected expenses. a. 2 percent b. 4 percent c. 6 percent d. 10 percent Ans: D KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. Computers, office equipment, and furniture are all examples of ______ that have a life of more than one year. a. current assets b. current liabilities c. capital equipment assets d. investments Ans: C KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Before a new businessperson can develop a competitive edge, it must determine its own uniqueness by evaluating ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. the competition b. start-up costs c. its market d. assets Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Creating a competitive advantage by holding down costs to provide customers the lowest priced products is known as ______. a. operational excellence b. product leadership c. customer intimacy d. least cost pricing method Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Creating a competitive advantage based on providing the highest quality products possible is known as ______. a. operational excellence b. product leadership c. customer intimacy d. Total quality management (TQM) Ans: B KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. New Balance athletic shoes are known for their high quality and technical excellence rather than for low price or other factors. New Balance uses which method for obtaining competitive advantage? a. operational excellence b. product leadership c. customer intimacy

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. inventory capacity Ans: B KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 41. A company that strives to offer good products at the lowest prices possible is operating with which competitive advantage? a. operational excellence b. product leadership c. customer intimacy d. best service method Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Creating a competitive advantage by maintaining a long-term relationship with customers through superior service is known as ______. a. operational excellence b. product leadership c. customer intimacy d. best service method Ans: C KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. The business relationship with customers ______ with the sale of the product or service. a. begins b. ends c. ends unless there is a problem with the product/service d. begins and ends Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. Most states collect sales taxes on ______ sold. a. everything b. tangible property c. intangible property d. goodwill property Ans: B KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Taxes on business income generally are due ______. a. in four annual installments b. twice per year c. every 30 days d. every 2 years Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. A person who provides services to a business but is not employed by that business is called a/an ______. a. dependent contractor b. independent contractor c. outcast d. insourcer Ans: B KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 47. For the last 30 years, Mac has been mowing lawns for the Greenside County School System. Despite the close working relationship he has with the school system, Mac is not officially on the school system’s payroll. Mac can best be described as a/n ______. a. dependent contractor b. independent contractor c. outcast d. insourcer Ans: B KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NARRBEGIN: 7-1 Scenario 7-1. Kelli is starting her new business in the mall in the coming weeks. She has finished her business plan and is now looking at planning her startup. Her business consists of a clothing store for young women who purchase medium-quality fashionable school and work clothes. She sees customer service as her strong point because she is currently in the same age group and is very clothes conscious herself. Her competitors, also located in the mall, are all older women who cater to older women who purchase fashion conscious clothes. Kelli has no business experience, yet is willing to invest her entire inheritance in her new business venture. She is single, 21, and has no current debts. She has an opportunity to rent a space in the local mall if she signs the agreement next week. Kelli is excited about being able to pick the clothes on her racks herself and then sell those clothes to young women who would look fashionable in them.

NARREND 48. In Scenario 7-1, one of the overriding questions Kelli still has is exactly who is it that will be buying her clothes and what do these people have in common? Kelli needs to further look at ______. a. her competitive advantage b. a market analysis c. a marketing plan d. her location Ans: B KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 7-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 49. In Scenario 7-1, Kelli is estimating her start-up costs. She has figured all of her expenses, her capital equipment purchases, deposits, insurance, etc. What amount should she now add to this total to cover expenses she did not plan on? a. 2 percent b. 7 percent c. 10 percent d. 15 percent Ans: C KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 7-1 50. In Scenario 7-1, Kelli’s competitive advantage would be which of the following? a. lower prices b. her location c. her customer service d. the fashionable clothes in her inventory Ans: C KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 7-1 51. In Scenario 7-1, which of the following is the area in which Kelli should compete as she pursues her new business venture? a. operational excellence b. product leadership c. customer intimacy d. quality leadership Ans: C KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 7-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 52. In Scenario 7-1, which of the following legal forms of businesses should Kelli choose if she wants to use the IRS Form 1040 C for income tax reporting? a. sole proprietorship b. partnership c. corporation d. franchise Ans: A KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 7-1 NARRBEGIN: 7-2 Scenario 7-2. Jack loves computers and has since he was a child. He spends every waking hour programming, rebuilding, and tinkering with any computer he can find. He has just graduated with a bachelor’s degree in computer science and is trying to decide what to do with the rest of his life. The computer stores in the town in which he lives are not places he would want to work. They are known for slow service, lack of quality computers, and inability to service the computers they sell. He is contemplating opening his own small business; however, lack of funds is his major problem. To deal with his lack of funds, initially he would concentrate on repair and service of existing computer systems and then expand into selling new computers as his capital base grew. He knows he could do a better job with customer service than what his competitors currently are doing.

NARREND 53. In Scenario 7-2, which of the following types of business should Jack begin? a. purchase an existing business b. start his own business c. purchase a computer franchise d. wait and inherit his father’s construction business Ans: B KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 7-2 54. In Scenario 7-2, Jack’s computer service/repair shop would be which of the following types of business? a. labor intensive

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. capital intensive c. trade intensive d. customer intensive Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 7-2 55. In Scenario 7-2, Jack could begin his business as one of the fastest growing segments of new business startups. This would address his problem of lack of funds by obtaining very low overhead. Which segment of business startups would this be? a. home-based businesses b. franchises c. corporations d. partnerships Ans: A KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 7-2 56. In Scenario 7-2, one of the major advantages that Jack would possess in his new business venture would be which of the following? a. his education b. his experience with computers over the last several years and his knowledge of the industry c. his source of funding d. his enthusiasm Ans: B KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 7-2 57. In Scenario 7-2, Jack’s competitive advantage would be which of the following? a. his emphasis on customer service

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. lower prices c. established customer base d. his education Ans: A KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 7-2

True/False 1. Beginning a new business is easier than buying an existing business or franchise because you can do everything right the first time.

Ans: F KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.1: About Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. A desire for total independence may mean a person is ready to start their own business.

Ans: T KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.1: About Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The biggest disadvantage of beginning an online business is that compared to a traditional business, you need a higher amount of overhead to become established and successful.

Ans: F KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Information technology 4. Online business has made all other business metrics obsolete.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Information technology 5. To run a successful web business, logistics are huge.

Ans: T KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. About 50 percent of home-based businesses deal with financial and service-related businesses.

Ans: F KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Most people quit their current jobs when starting their new business.

Ans: F KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Most fast-growth companies are started by partnerships.

Ans: T KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. A majority of high-growth CEOs had at least 10 years of experience in the industry before beginning a new business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. There is no difference between an idea and an opportunity.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Fast-growth start-ups tend to be headed by people who have started other businesses.

Ans: T KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The first thing you need to start a new business is a business plan.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Windows of opportunity seldom open and close since the markets for products and services seldom change.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. As a product progresses through the product life cycle, the window of opportunity for the product concept widens.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. In the idea stage, what a small business owner needs is people who can be objective about the new business idea and point out shortcomings.

Ans: T KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The most common source of ideas for new businesses comes from education courses taken by potential new business owners.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. When deciding whether an idea represents an opportunity that should be pursued, it is important to trust research and ignore intuition.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. The corridor principle describes how business opportunities can be projected far into the future.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Turning a hobby into a business is a viable route to self-employment.

Ans: T KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. New ideas occur to small business owners three times as often after the business is running than before it began.

Ans: F KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Sometimes business opportunities come unexpectedly, and the small business owner must then take advantage of that opportunity presented.

Ans: T KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The most critical concern in getting a business off the ground is the feasibility of the idea.

Ans: T KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. In addition to a business plan, a market analysis, competitive analysis, and startup costs are important to success.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Companies that pursue operational excellence know that their customers value low price.

Ans: T KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 25. Focusing on one-time sales with individual customers is the premise behind the customer intimacy model.

Ans: F KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 26. Customer service could be the competitive advantage for a business.

Ans: T KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. The name of the business must be filed with the secretary of state in the state where the business is being formed.

Ans: T KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 28. When a business begins operations, advance payments of estimated federal and possibly state income taxes must be paid.

Ans: T KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. If a person provides services to a business but is not an employee of the business, they are considered dependent contractors.

Ans: F KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Withholding for Social Security taxes is 9.25 percent, which the employer must match.

Ans: F KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Analyze two advantages and two disadvantages of starting a business from scratch.

Ans: Advantages freedom to establish a distinct competitive advantage no prior negative business image pride of ownership new location and customer base new employees Disadvantages risk of failure is higher trouble with market identification must inform customers that the business exists thousands of small, minor details KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Comprehension

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 7.1: About Start-Ups Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. List at least four basic characteristics that a successful online business must possess.

Ans: It’s not just retail (business-to-business transactions account for the bulk of ecommerce).

Have a sound business strategy.

Have a clear market analysis and create traffic coverage.

Logistics are huge.

Use the Internet to save money.

Build your competitive advantage.

KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Medium TOP: AACSB Standard: Information technology 3. Describe home-based businesses and explain why and how home-based businesses have become the fastest growing segment of business startups.

Ans: 30 percent of home-based businesses deal with financial and computer-related services popular due to schedule flexibility and low overhead made possible through technology such as notebook computers, wireless modems, fax, cellular phones, and laser printers taking advantage of corporate outsourcing KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Describe three characteristics of fast-growth companies.

Ans: rely on team efforts headed by people who know the line of work headed by people who have previously started other businesses making substantial rewards--40% take home more than $500k annually 41 percent are high-tech better financed markets are not just local markets KEY: Learning Objective: 7.2: Describe types of new businesses and discuss the characteristics commonly shared by fast-growth companies.

REF: Cognitive Domain: Comprehension

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 7.2: Types of New Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Describe three ways people develop ideas for new businesses.

Ans: prior work experience the corridor principle hobbies and avocations chance happenings and/or serendipity special talents they possess KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Besides writing a business plan, list and describe three other steps that are important in the startup of a new business.

Ans: market analysis competitive analysis startup costs legal form for the business location marketing plan KEY: Learning Objective: 7.3: Evaluate potential start-ups and suggest sources of business ideas.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.3: Evaluating Potential Start-Ups Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Discuss the three grounds on which companies compete.

Ans: operational excellence product leadership customer intimacy KEY: Learning Objective: 7.4: Explain the most important points to consider when starting a new business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 7.4: Getting Started Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 8: ACCOUNTING RECORDS AND FINANCIAL STATEMENTS Multiple Choice 1. The current ratio ______. a. shows the current level of profits b. shows the current ratio of sales to profits c. shows the ratio of debt to profits d. shows the firm’s ability to cover its current liabilities with its current assets Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Information technology 2. The system within a business for converting raw data from source documents (like invoices, sales receipts, bills, and checks) into information that will help a manager make business decisions is known as a/an ______. a. computer system b. accounting system c. record system d. data system Ans: B KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.1: Small Business Accounting Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Most of the mismanagement decisions that cause small businesses to fail are related to ______. a. inventory b. personnel c. finance d. sales Ans: C KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.1: Small Business Accounting Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. At Wilson’s Wash and Go, business managers ensure that all financial transactions are recorded in chronological order. These transactions are then classified by type. This example specifically involves which two areas of the accounting process? a. journals and ratios b. ledgers and financial statements c. ratios and financial statements d. journals and ledgers Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 5. ______ refers to what the business owes. a. Debit b. Asset c. Owner’s equity d. Liability Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. ______ refers to what the business owner has invested in the business. a. Debit b. Asset c. Equity d. Liability Ans: C KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. An accounting system in which every business transaction is recorded in an asset account, a liability account, or an owner’s equity account in order for the system to balance is known as which of the following? a. double-entry accounting

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. open-book accounting c. managerial accounting d. cost accounting Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. In double-entry accounting systems, debits must always equal ______. a. assets b. liabilities c. credits d. owner’s equity Ans: C KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Double-entry accounting systems revolve around all but which of the following types of accounts? a. asset b. liabilities c. owner’s equity d. expense Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Single-entry accounting systems record the flow of income and expenses in a running log and allow the small business owner to produce ______. a. an income statement b. a balance sheet c. a statement of cash flows d. monthly statements Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. In the accounting equation, Assets = Liabilities + ______. a. Revenue b. Expenses c. Equity d. Cash flow Ans: C KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. In the accounting equation, Cash Flow = Receipts − ______. a. Revenue b. Expenses c. Equity d. Disbursements Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. “Profit = Revenue − Expenses” represents the activity described in the ______. a. income statement b. balance sheet c. cash flow statement d. quick ratio Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. At Fran’s Floral, Fran records transactions when cash is actually received and when expenses are actually paid. This is referred to as the ______ method of accounting. a. accrual-basis b. cash-basis c. liquidity-basis d. profit-basis Ans: B KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 15. A summary book for recording all transactions and account balances is referred to as a/an ______. a. general ledger b. balance sheet c. journal d. income statement Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. A method of accounting in which income or expenses are recorded at the time they are incurred, rather than when they are paid, is called ______. a. accrual basis b. cash basis c. time basis d. expense basis Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. A small business owner should not use the cash basis if ______. a. the business extends credit b. the business has high debt c. the business has low sales

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. the business has increasing expenses Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. The accounting standards that have been established so all businesses produce comparable financial statements are known as which of the following? a. GAAP b. FASB c. GANTT d. GAT Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The financial record that summarizes the income and expenses of the business over time is the ______. a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. A financial statement that includes a percentage breakdown of each item is known as which of the following? a. income statement b. common-size financial statement c. statement of retained earnings d. statement of cash flows Ans: B KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. A financial statement that shows a firm’s assets, liabilities, and owner’s equity is called a/an ______. a. income statement b. common-size financial statement c. balance sheet d. statement of cash flows Ans: C KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. A financial statement that shows the cash inflows and outflows of a business is called a/an ______. a. income statement b. common-size financial statement c. balance sheet d. statement of cash flows Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Financial statements that project what a firm’s financial condition will be in the future are known as ______. a. pro forma financial statements b. common-size financial statements c. balance sheets d. statements of cash flows Ans: A KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 24. ______ are either full or partial estimates, since projections are being made as opposed to recording actual transactions. a. Income statements b. Common-size financial statements c. Pro forma financial statements d. Statements of cash flows Ans: C KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. When more cash is going out of a business than is coming in, this is referred to as ______. a. cash turnover ratio b. profit c. negative cash flow d. being “in-the-black” Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Elvira is considering purchasing a new truck for her distribution company. To better evaluate such a financial risk, she makes projections about what her company’s financial condition will be like in the future if a new truck is purchased. This is referred to as a/an ______. a. business cycle balance sheet b. common-size financial statement c. statement of current cash flow d. pro forma financial statement Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 27. Which of the following financial actions should be made on a weekly basis by a small business manager? a. check your cash balance on hand b. note especially slow-paying accounts c. record any money paid out d. review federal tax requirements Ans: B KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Which of the following financial actions should be made on a monthly basis by a small business manager? a. check your cash balance on hand b. note especially slow-paying accounts c. calculate payroll d. review your income statement Ans: D KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Which of the following is not a major category of financial ratios? a. equity b. leverage c. activity d. profitability Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Benchmark analysis compares firms to ______. a. industry averages b. lagging competitors c. industry leaders d. their own past performance

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Calculations that compare the important financial aspects of a business are called ______. a. financial ratios b. overview ratios c. accounting ratios d. analytical thinking ratios Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. ______ analysis involves comparing firms’ financial ratios to the industry averages. a. Industry average b. Benchmarking c. Competitive average d. Trend Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Each year, managers at Super Socks compare their current financial ratios with the numbers from the previous two years. This is referred to as what kind of analysis? a. industry average analysis b. benchmarking analysis c. time continuum analysis d. trend analysis Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 34. The ratios used to measure a firm’s ability to meet its short-term obligations to creditors as they come due are called ______. a. liquidity ratios b. activity ratios c. leverage ratios d. profitability ratios Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Which of the following ratios measures the number of times the firm can cover its current liabilities with its current assets? a. current ratio b. quick ratio c. debt ratio d. return on assets Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. Harry’s Home Services has current liabilities of $450,000, current assets of $500,000, and profits of $80,000. Which of the following is the current ratio for Harry’s business? a. 0.17 b. 0.9 c. 1.11 d. 16 Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 37. Current ratios of 1.0 or less are considered ______. a. to show excessive liquidity b. low and indicative of potential financial problems c. average d. very positive Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. If Tim’s Tools & Tunes has current assets of $500, inventory of $45, current liabilities of $425, and profit of $250, which of the following is the quick ratio for the business? a. 1.07 b. 1.28 c. 1.7 d. 2.18 Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 39. The ratios that measure the speed with which various accounts are converted into sales or cash and that are used to measure the efficiency of asset usage are known as ______. a. liquidity ratios b. activity ratios c. leverage ratios d. profitability ratios Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. The ratio that measures how quickly goods are sold and replenished is called ______. a. average collection period

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. inventory turnover c. quick ratio d. current ratio Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Bill’s Bolo business has a cost of goods sold of $45,000, an inventory of $20,000, and current assets of $50,000. Which of the following is the inventory turnover for the business? a. 0.9 b. 1.3 c. 2.25 d. 2.5 Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 42. The measure of how long it takes a firm to convert a credit sale into a usable form is known as which of the following? a. average collection period b. inventory turnover c. quick ratio d. current ratio Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Sally’s Shoe Service has accounts receivables of $35,335, average sales per day of $500,000, and a cost of goods sold of $45,000. What is her average collection period? a. 7.0 days b. 7.8 days c. 14.15 days d. 25.79 days

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 44. High average collection periods usually indicate ______. a. sales that are increasing b. accounts receivable that are all being collected c. many uncollected accounts receivable d. overly restrictive credit policies Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Which of the following ratios measures how efficiently the firm is using its assets to generate sales? a. current ratio b. total asset turnover ratio c. fixed asset turnover d. debt ratio Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. A low fixed asset turnover ratio often indicates that ______. a. the firm is efficiently using its current assets b. the firm is efficiently using its total assets c. the firm is keeping expenses low d. marketing efforts are ineffective Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 47. Larry’s Lab has sales of $35,750, net fixed assets of $14,500, current assets of $12,300, and cost of goods sold of $30,000. Which of the following is the fixed asset turnover ratio for the business? a. 1.18 times b. 1.19 times c. 2.47 times d. 2.91 times Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 48. Which of the following ratios measures how efficiently the firm uses all of its assets to generate sales? a. fixed asset turnover b. total asset turnover c. debt ratio d. times interest earned ratio Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. Shelli’s Ski Super has sales of $670, net fixed assets of $210, total assets of $305, and current assets of $25. Which of the following is the total asset turnover ratio for the business? a. 0.46 times b. 2.2 times c. 3.19 times d. 26.8 times Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 50. Which of the following ratios measures the extent to which a firm uses debt as a source of financing and its ability to service that debt? a. liquidity ratios b. activity ratios c. leverage ratios d. profitability ratios Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. Which of the following ratios measures the proportion of a firm’s total assets that have been acquired with borrowed funds? a. fixed asset turnover b. total asset turnover c. debt ratio d. times interest earned ratio Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. Kim’s Kar Kare Service has total debt of $690, total assets of $1,260, interest expense of $140, and sales of $400. Which of the following is the debt ratio for the business? a. 11.1 percent b. 31.7 percent c. 54.8 percent d. 58 percent Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 53. Which of the following ratios shows how far operating income can decline before the firm will have difficulties servicing its debt obligation? a. fixed asset turnover

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. total asset turnover c. debt ratio d. times interest earned ratio Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. Sandi’s Silver Service has operating income of $545, sales of $750, expenses of $245, and interest expense of $198. Which of the following is the times interest earned ratio for the business? a. 2.22 b. 2.75 c. 4.49 d. 72.6 Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 55. Which of the following ratios is widely used as an indication of management efficiency and measures the percentage of each sales dollar that remains as profit after all expenses have been paid. a. times interest earned b. net profit margin c. return on assets d. return on equity Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. Becky’s Bovine Specials has a net income of $345, operating income of $305, sales of $678, and total assets of $245. Which of the following is the net profit margin for her business? a. 0.361 b. 0.450

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. 0.508 d. 0.884 Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 57. Which of the following ratios shows effective management and the firm’s effectiveness in generating profits from the available assets? a. times interest earned b. net profit margin c. return on assets d. return on equity Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 58. Danny’s Dog Delivery has total assets of $975, sales of $989, net profit after taxes of $56, and operating income of $576. Which of the following is the return on assets ratio for this business? a. 0.057 b. 0.591 c. 0.986 d. 1.01 Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 59. Which of the following ratios measures the return the firm earned on its owner’s investment in the firm? a. times interest earned b. net profit margin c. return on assets d. return on equity Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 60. Ally’s Allied Apples has net profit after taxes of $30, total assets of $989, sales of $979, owner’s equity of $990, and interest expense of $56. Which of the following is the return on equity for this business? a. 0.030 b. 0.057 c. 0.989 d. 1.87 Ans: A KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 61. Tracking and forecasting ______ is often more critical to the survival of a business than is profit. a. sales b. revenues c. expenses d. cash flows Ans: D KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 62. Each business day, 12 small businesses in the United States declare bankruptcy primarily for which of the following? a. lack of sales b. inexperienced management c. poor cash-flow management d. increasing expenses Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 63. The goal of good cash-flow management is to ______. a. increase sales and thus increase revenues b. decrease expenses and thus increase profits c. have enough cash on hand when it is needed d. increase asset usage and thus increase revenue Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 64. The period of time that begins when money is spent on raw materials and does not end until money is collected on the sale of a finished good is known as which of the following? a. cash-to-cash cycle b. cash budgets c. sales-to-cash cycle d. accounts receivable-to-cash cycle Ans: A KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 65. The major complication involved in cash-flow management is ______. a. revenue b. sales c. timing d. expenses Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 66. The cash-to-cash cycle begins with ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. manufacturing b. using cash to purchase raw materials or inventory c. generating sales of goods or services d. collecting accounts receivable Ans: B KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 67. A document that allows the firm to plan its short-term cash needs with particular attention to periods of surplus and shortage so that short-term investments can be made during cash surplus times and short-term loans can be taken during cash shortages is called the ______. a. cash-to-cash cycle b. cash budget c. cash planning statement d. cash-flow statement Ans: B KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 68. The practice of showing everyone involved in a business the numbers that are critical to the performance of the business is called which of the following? a. democratic management b. open-book management c. financial management d. human resource management Ans: B KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 69. An aging schedule that shows only the percentage of receivables for 0–30 days, 31–60 days, 61–90 days, and over 90 days is referred to as a/an ______. a. macro-aging schedule b. micro-aging schedule

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. current-aging schedule d. future-aging schedule Ans: A KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 70. Which of the following is the most likely place to concentrate cash flow management strategies? a. supplies b. compensation c. receivables d. insurance Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 8-1 Scenario 8-1. Dea’s Drugstore is currently having cash-flow problems. As the bills come due, Dea is having more difficulty ensuring that there is sufficient cash to pay those bills.

It is a relatively new problem for her business, and she is not sure what to do. The only changes that she is aware of are some new requirements in the way insurance companies are reimbursing their customers for prescription drugs. Overall, inventory in the store is moving as usual and expenses have not increased from last year.

NARREND 71. In Scenario 8-1, if Dea does not solve her cash-flow problems shortly, ______. a. she will not make a profit b. sales will fall c. expenses will fall d. she may become insolvent Ans: D KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking Nar: 8-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 72. In Scenario 8-1, if Dea declares bankruptcy, she will join ______ other small businesses that declare bankruptcy each day due to poor financial management. a. six b. eight c. ten d. twelve Ans: D KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 8-1 73. In Scenario 8-1, all but which of the following tools may help Dea with her cash flow problem? a. a cash budget b. micro-aging schedule c. macro-aging schedule d. an income statement Ans: D KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 8-1 74. In Scenario 8-1, as Dea is glancing through her accounts receivables from her pharmacy customers, she notices that many accounts are over 90 days past due. A schedule that would show each customer’s account, the amount they owe, and the amount that is past due is called a/an ______. a. macro-aging schedule b. past due account schedule c. micro-aging schedule d. accounts receivable schedule Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 NAR: 8-1 75. In Scenario 8-1, which of the following areas may be contributing heavily to Dea’s cash flow problems? a. sales b. expenses c. accounts receivables d. inventory costs Ans: C KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 8-1 NARRBEGIN: 8-2 Scenario 8-2. Denny’s Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.

Denny’s Diner Industry Current Ratio 1.51 1.62 Average Collection Period 2.50 Inventory Turnover 80 75 Debt Ratio 43% 52% Net Profit Margin 10.2 8.3 NARREND

5.00

76. In Scenario 8-2, after analyzing the current ratio, you determined that ______. a. Denny has a problem b. Denny can cover his current liabilities 1.51 times with his current assets c. Denny is too far off of the industry average in this case d. Denny has inventory that cannot easily be converted into cash Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 8-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 77. In Scenario 8-2, after analyzing the inventory turnover ratio, you determined that ______. a. Denny has a problem because this number is so high b. Denny is turning his inventory over too much c. Denny is not turning his inventory over enough to be profitable d. Denny is keeping his inventory current, which is positive due to the nature of his business Ans: D KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 8-2 78. In Scenario 8-2, after analyzing the average collection period ratio, you concluded that ______. a. Denny has a problem since his number is so low b. Denny may have overly restrictive credit policies c. Denny has many uncollected accounts receivable d. Denny’s cash flow will soon be affected since his accounts receivables are not being paid.

Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 8-2 79. In Scenario 8-2, after analyzing the debt ratio, you concluded that ______. a. Denny has a problem because the number is so low b. Denny has a higher risk factor than the industry c. Denny has financed 43 percent of the assets with borrowed funds d. Denny needs to be concerned about this ratio and increase it in the near future Ans: C KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 8-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 80. In Scenario 8-2, after analyzing the net profit margin, you determined that ______. a. Denny has a problem because this number is so high b. Denny is generating 10 cents of after-tax profit per each dollar of sales c. Denny is generating 10 percent on after-tax profits d. Denny should be concerned with management efficiency Ans: B KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 8-2

True/False 1. According to the text, the accounting process helps the small business owner translate numbers--the language of business--into plain English.

Ans: T KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.1: Small Business Accounting Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The majority of the mismanagement decisions that cause small businesses to fail are related to finance.

Ans: T KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.1: Small Business Accounting Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Assets are what your business owes, whereas liabilities are what your business owns.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Another name for assets is net worth.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. When using a double-entry accounting system, debits always equal owner’s equity.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Using a single-entry accounting system will allow a small business owner to produce an income statement and a balance sheet.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Small business owners should always use separate checkbooks for their businesses and their personal lives.

Ans: T KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. In the accounting equation, Assets = Liabilities + Revenue.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 9. The accounting equation Assets = Liabilities + Equity is illustrated by the profit-andloss financial statement.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. “Cash flow = Receipts − Disbursements” is the basis of the cash flow statement.

Ans: T KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Generally accepted accounting principles are intended to create financial statement formats that are unique to each industry.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. When using the accrual basis method of accounting, transactions are recorded when cash is actually received and expenses are paid.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. The three most important financial statements for providing financial information about a business are the income statement, the balance sheet, and the statement of retained earnings.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. The cash flow statement is a critical financial statement, often more important to the survival of a business than profit as reported on the income statement.

Ans: T KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. When preparing common-size statements, full or partial estimates are used since the business owner is making projections rather than recording actual transactions.

Ans: F KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The expertise with which the small business owner can understand, interpret, and use the information found in the financial statements will determine the soundness of the financial decisions made.

Ans: T KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. On a weekly basis, business managers should record any money that is paid out.

Ans: F KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Ratio analysis is the most common form of financial analysis.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Industry average analysis compares firms to industry leaders.

Ans: F KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Financial ratios by themselves tell the small business owner very little.

Ans: T KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Benchmarking involves computing financial ratios of an industry leader and comparing those ratios with one’s own firm.

Ans: T KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Activity ratios are used to measure a firm’s ability to meet its short-term obligations to creditors as they come due.

Ans: F KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 23. Low average collection periods usually indicate many uncollectible receivables, while high average collection periods may indicate overly restrictive credit-granting policies.

Ans: F KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. A high fixed asset turnover ratio generally reflects good overall management because it measures how efficiently the firm uses all of its assets to generate sales.

Ans: F KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. A low net profit margin ratio indicates that expenses are too high relative to sales.

Ans: T KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. A high return on equity ratio is generally a good indication for a business; however, this ratio is highly affected by debt and may not be an accurate measurement of management effectiveness.

Ans: T KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Each business day, 5,000 small businesses in the United States declare bankruptcy primarily because of poor cash flow management.

Ans: F KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Without proactively managing a firm’s cash flow, the firm is exposed to many risks, each of which could spell disaster.

Ans: T KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. The primary reason a small business needs adequate cash flow is to pay the bills incurred by the business.

Ans: T KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. A cash budget typically covers a two-year period that is divided into smaller intervals.

Ans: F KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Aging schedules are listings of a firm’s account payables according to the length of time they are outstanding.

Ans: F KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Short Answer 1. Discuss the importance of financial records to a small business.

Ans: necessary in order to make managerial decisions necessary in order to know how much is owed and how much is owned helps to identify financial problems before they become serious used to prepare tax returns needed to survive in a competitive marketplace KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.1: Small Business Accounting Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Discuss the three primary financial records that are needed by small business owners.

Ans: Income statement also called the profit-and-loss statement summarizes income and expenses shows cost of goods sold Profit = Revenue – Expense Balance sheet two main sections assets and liabilities the two sides must balance Assets = Liabilities + Equity Statement of cash flows highlights the cash coming into and going out of a business the importance of tracking cash flow cannot be overstated.

Cash flow = Receipts – Disbursements KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. List at least four actions that should be taken on a weekly basis by a business manager.

Ans: update a cash-flow statement update accounts receivable updates accounts payable calculate payroll note when tax items are due KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.2: Small Business Accounting Basics Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Compare and contrast liquidity ratios and activity ratios.

Ans: Liquidity ratios Used to measure a firm’s ability to meet short-term obligations to creditors as they come due.

Uses the firm’s current assets and current liabilities.

Current ratio and quick ratio are two important liquidity measures.

Activity ratios Used to measure the speed with which various accounts are converted into sales or cash.

Used to measure how efficiently a firm uses its assets.

Inventory turnover, average collection period, fixed asset turnover, and total asset turnover are activity measures.

KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Compare and contrast leverage ratios and profitability ratios.

Ans: Leverage ratios Used to measure the extent to which a firm uses debt as a source of financing.

Measures ability to service debt.

Debt ratio and times interest earned ratio are two measures of leverage.

Profitability ratios Used to measure the ability of a company to turn sales into profits.

Used to measure overall effectiveness of the management team.

Net profit margin, return on assets, and return on equity are measures of profitability.

KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.3: Analyzing Financial Statements Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Explain the importance of cash flow for a small business owner.

Ans: Critical because if there is not enough money to pay the bills, the business will be bankrupt.

Majority of business failures are due to poor cash-flow management.

Requires as much attention as the other major aspects of a small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ultimate goal is to maximize the use of cash.

KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. List at least five tips for managing accounts receivable.

Ans: establish sound credit practices process orders quickly prepare the invoice the same day as the order is received mail the invoice the same day it is prepared offer discounts for prompt payment aggressively follow up on past-due accounts deposit payments promptly negotiate better terms with suppliers and banks keep a tight control on inventory review and reduce expenses pay bills on time, but not before they are due be smart in designing your invoice KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 8.4: Managing Cash Flow Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 9: SMALL BUSINESS FINANCE Multiple Choice 1. Those who rarely invest in retail operations but instead focus on high technology and growth industries (also essential services) are ______. a. banks b. the Small Business Administration c. angels d. venture capitalists Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The process of determining initial capital requirements for a business begins with identifying ______. a. long-term liabilities b. short-term and long-term equity c. short-term and long-term assets as well as expenses d. financing requirements Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The fundamental financial building blocks for a small business owner are knowing what assets are required to open the business and how those assets will be financed.

This is known as ______. a. financial management b. initial capital requirements c. managerial accounting d. open-book management Ans: B KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Assets that will be converted into cash within one year are called ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. short-term assets b. long-term assets c. capital assets d. financial assets Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Assets that will not be converted into cash within one year are called ______. a. short-term assets b. long-term assets c. capital assets d. financial assets Ans: B KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Cash, inventory, and prepaid expenses are which of the following? a. short-term assets b. long-term assets c. capital assets d. financial assets Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Building, equipment, land, and patents are which of the following? a. short-term assets b. long-term assets c. capital assets d. financial assets Ans: B KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 8. If a small business owner needs to obtain a loan for purchasing inventory that is expected to sell within one year, the maturity of the loan should be ______. a. short-term b. intermediate-term c. long-term d. perpetuity Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 9. The final step in defining required assets before opening a business involves ______. a. evaluating fixed costs and other expenses b. subtracting the dollar value of the owner’s equity from the total dollar value of the required assets c. evaluating the situation to determine exactly what has to be in place for the business to operate effectively d. determine financing requirements Ans: B KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. When reviewing loan applications, Jessica, a loan officer at A+ credit union, always examines the amount of cash and marketable securities that applicants have on hand.

She reviews historical, current, and projected cash flows of a business to gauge whether applicants are able to repay the loan. These activities best describe which of the five “C’s” of credit? a. Capacity b. Capital c. Collateral d. Character Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 11. Determining the applicant’s ability to repay a loan by examining the amount of cash and marketable securities and the projected cash flows is which of following five C’s?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. Capacity b. Capital c. Competency d. Character Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The general economic climate at the time of the loan application is which of the following five C’s of credit? a. Capacity b. Capital c. Conditions d. Character Ans: C KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. The ability to finance an investment through borrowed funds is known as ______. a. equity b. leverage c. capital d. liabilities Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Debt creates the risk of becoming ______ if the entrepreneur is unable to make each debt payment on time. a. profitable b. insolvent c. overextended d. successful Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Providers of equity funds forego the opportunity to receive periodic repayments in order to share in ______. a. sales b. profits c. revenues d. expenses Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Equity funds never need to ______. a. be repaid b. be accounted for c. be stated on the income statement d. be stated on the balance sheet Ans: A KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Two kinds of funds are potentially available to the entrepreneur ______. a. debit and credit b. financing and borrowing c. debt and equity d. liability and asset Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. An amount of money borrowed from a lender is known as the ______. a. interest rate b. principal c. maturity length d. prime interest rate Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The amount of money that a small business owner needs to borrow is the difference between the pro forma assets and ______. a. projected sales b. projected expenses c. owner’s equity d. project liabilities Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. The amount of money paid for the use of borrowed funds is known as ______. a. interest b. principal c. maturity length d. debt Ans: A KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Interest rates for small business owners are normally made up of the ______ plus an additional percentage. a. discount rate b. federal funds rate c. prime interest rate d. annual percentage rates Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The more compounding periods, the ______ the effective rate of interest. a. lower

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. no effect on c. higher d. better Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. A loan with an interest rate that changes over the life of the loan is known as a ______. a. fixed-rate loan b. variable-rate loan c. balloon payment loan d. revolving loan Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. The rate of interest charged to a bank’s “best” customers is referred to as ______. a. fixed rate b. dividend rate c. grade A rate d. prime rate Ans: D KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Upon obtaining a $100,000 business loan from his local bank, Arthur was informed that he must keep at least $10,000 on deposit with the bank. This is referred to as a/an ______. a. effective rate of interest b. compensating balance c. required dividend d. maturity requirement Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 26. ______ refers to the intervals at which interest is paid. a. Collateral b. Liquidity c. Compounding d. Securing Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Wilma is ecstatic about the purchase of her first house. She has taken out a 30-year mortgage at a 5.25 percent interest rate, and her mortgage broker has informed her that the interest rate will not change for the life of the loan. What type of loan did Wilma take out? a. fixed-rate loan b. variable-rate loan c. equity loan d. long loan Ans: A KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 28. Each year, Alexandra receives a payment for the stock she owns within the company where she is employed. The amount of the annual payment fluctuates based on the company’s net profits. This is referred to as ______. a. an asset b. a liability c. a dividend d. equity Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 29. The length of time in which a loan must be repaid is called the ______. a. principal

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. interest rates c. maturity d. collateral Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. The sale of common stock or the use of retained earnings to provide long-term financing is known as ______. a. debt financing b. creative financing c. equity financing d. long-term financing Ans: C KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. A clause that requires the borrower to maintain a minimum level of working capital until the loan is repaid is known as ______. a. covenants b. assurances c. endorsements d. guarantors Ans: A KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. ______ security refers to the borrower’s assurance to lenders that loans will be repaid. a. Loan b. Note c. Debt d. Equity Ans: A KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. The two types of loan endorsers are ______. a. borrowers and guarantors b. guarantors and comakers c. borrowers and lenders d. comakers and borrowers Ans: B KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. Ralph just received a loan from his local bank, where he must make periodic payments that include accrued interest and part of the outstanding principal balance.

Ralph’s loan is known as a/an ______. a. lateral loan b. unsecured loan c. secured loan d. installment loan Ans: D KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 35. ______ are the backbone of the credit market, offering the widest assortment of loans to creditworthy small businesses. a. Credit unions b. Savings and loans c. Commercial banks d. Venture capitalists Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. A short-term loan where collateral is not required is called a/an ______. a. unsecured loan b. secured loan c. line of credit

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. demand note Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. An agreement that makes a specific amount of short-term funding available to a business as it is needed is called a/an ______. a. unsecured loan b. secured loan c. line of credit d. demand note Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. A short-term loan where both principal and interest must be repaid in a lump sum at maturity is known as a/an ______. a. unsecured loan b. secured loan c. line of credit d. demand note Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. A loan that requires the borrower to make small monthly payments that are usually enough to cover the interest, with the balance due at maturity is called a ______. a. balloon note b. floor planning c. line of credit d. demand note Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 40. A type of business loan that is generally made for high-priced items like new automobiles or trucks, where the business holds the item in inventory and pays interest, and where the asset is still owned by the lender until it is sold, is known as which of the following? a. an unsecured loan b. floor planning c. a line of credit d. a demand note Ans: B KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Which type of loans are made to established businesses that have demonstrated a strong overall credit profile and have shown excellent creditworthiness and an extreme probability of repayment? a. balloon note b. floor planning c. installment loans d. unsecured term loans Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Commercial finance companies extend short- and intermediate-term credit to small businesses at an interest rate that is ______ commercial banks. a. lower than b. the same as c. higher than d. the prime interest given by Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Self-liquidating loans are often ______. a. unavailable b. tied to life insurance

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. provided by family members d. unsecured Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. What type of loan requires collateral as security for the lender? a. lateral loan b. unsecured loan c. secured loan d. installment loan Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. At Lou’s Landscaping Services, a number of customers were not paying up on time, and Lou needed cash for a large purchase. As a result, Lou sold the company’s accounts receivable to a finance company for 70 percent of the total collection amount.

This method of raising funds is referred to as ______. a. floor planning b. bartering c. crediting d. factoring Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 46. Which type of loans are provided by commercial finance companies and allow small businesses to have use of state-of-the-art equipment at a fraction of the cost? a. leasing b. floor planning c. balloon notes d. factoring accounts receivable Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. The practice of raising funds for a business through the sale of accounts receivable is known as which of the following? a. leasing b. floor planning c. balloon notes d. factoring accounts receivable Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. A finance company will generally purchase the accounts receivable or lend small businesses somewhere between ______ percent of the face value of the accounts receivable being factored. a. 40 and 60 b. 45 and 70 c. 55 and 80 d. 70 and 90 Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. ______ are made to small business owners based on the amount of money paid in premiums on an insurance policy that has a cash surrender value. a. Floor planning loans b. Leases c. Installment loans d. Policy loans Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. An insurance company will frequently lend up to ______ of a policy’s cash surrender value. a. 10 percent

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. 30 percent c. 59 percent d. 95 percent Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. A small business may qualify for loans through a commercial bank where a portion of the loan is guaranteed by the Small Business Administration. This loan is known as ______. a. an SBA loan b. a government loan c. a direct loan d. a 504 loan Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. Loans that are granted by commercial banks to entrepreneurs that are then guaranteed at up to 90 percent of the loan value by the SBA as part of the 7(a) program are called which of the following? a. SBA loans b. guaranteed loans c. direct loans d. 504 loans Ans: B KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 53. A relatively new loan program available through the SBA that simplifies the paperwork and reduces the time required for a loan answer that has historically been required is the ______. a. SBA loan b. guaranteed loan c. direct loan d. SBA express program Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 54. Under the SBA express program, up to ______ can be borrowed by a small business with a one-page application. a. $10,000 b. $150,000 c. $75,000 d. $350,000 Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 55. Which of the following is an appropriate follow-up action if a potential lender initially says “no”? a. ask for advice b. avoid further communication c. submit the same application again d. show resentment Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. The first place most entrepreneurs find equity capital is ______. a. partners b. community investors c. venture capital firms d. in their personal assets Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. Most state and local government programs usually have ______ interest rates than conventional loans, often with ______ maturities.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. higher; longer b. higher; shorter c. lower; longer d. lower; shorter Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 58. The purchase of goods from suppliers who do not demand payment immediately is called which of the following? a. trade credit b. guaranteed loans c. direct loans d. LowDoc program Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 59. Most lenders will expect entrepreneurs to provide equity funds in an amount of at least ______ percent of the business before approving a loan. a. 10 b. 20 c. 35 d. 50 Ans: B KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 60. The Department of Commerce estimates that nearly ______ of all startups begin without borrowed funds. a. 10 percent b. 30 percent c. 66 percent d. 75 percent Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 61. Groups or individuals who invest in specific high-potential new or expanding firms are called which of the following? a. venture capitalists b. small business investment companies c. angels d. private placements Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 62. Approximately what percentage of U.S. businesses are partnerships? a. 2 b. 10 c. 20 d. 30 Ans: B KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 63. Walter is a retired CEO of a Fortune 500 company. He now focuses much of his energy on loaning money to new business owners who have innovative ideas but limited funds. Walter can best be described as what type of angel? a. professional angel b. micromanagement angel c. corporate angel d. white angel Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 64. Doctors, lawyers, and accountants make up what category of angels? a. professional angels b. micromanagement angels

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. entrepreneurial angels d. enthusiast angels Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 65. An investor who is typically a successful entrepreneur who has a desire to assist startups or emerging businesses by investing $20,000 to $50,000 is known as a/an ______. a. venture capitalist b. small business investment company c. angel d. private placement Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 66. Which of the following involves the sale of stock to a selected group of individuals where the stock cannot be purchased by the general public? a. venture capitalists b. small business investment companies c. angels d. private placement Ans: D KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 67. The first sale of the stock of a business that is made available to public investors is known as which of the following? a. an IPO b. a small business investment company c. an angel d. a private placement Ans: A KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 9-1 Scenario 9-1. Jim is interested in beginning his own small business dealing with the repair and maintenance of household appliances. He has a talent for fixing these types of appliances and has been doing so as a sideline business for several years. He has acquired some of the needed tools; however, a sizeable investment will need to be made in tools and equipment in order for him to repair the appliances that will be brought to his shop for service. He would like part of his competitive advantage to be the capability to fix all appliances, not just one type. Jim has just one small problem--a lack of funds. He comes to you for advice.

NARREND 68. In Scenario 9-1, Jim has two basic choices when looking for funds. They are which of the following? a. assets and liabilities b. debt and assets c. debt and equity d. equity and assets Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-1 69. In Scenario 9-1, the primary disadvantages of using debt financing are all but which of the following? a. it increases risk due to the possibility of insolvency b. it allows a voice in management of the business c. it has to be repaid d. leverage can enable returns to be lessened Ans: B KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-1 70. In Scenario 9-1, the primary disadvantages of using equity financing are all but which of the following? a. it allows a voice in the management of the business b. it provides for a sharing of the profits

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. it does not constrain cash flow d. it shares ownership in the business Ans: C KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-1 NARRBEGIN: 9-2 Scenario 9-2. Ryan has just graduated from college with a business degree. He has a wonderful idea for a new business called Ryan’s Road Machines. He would like to sell a variety of all-terrain vehicles (ATVs) for the personal use of his selected clientele.

Outstanding customer service will be his competitive advantage as he provides individual service to each of his customers. He has just one small problem, no capital.

He knows that he must meet the five C’s of credit when looking at external funding in order to prove his creditworthiness.

NARREND 71. In Scenario 9-2, a major concern of any provider of funding will be Ryan’s ability to repay his loan. This refers to which of the five C’s? a. Capacity b. Capital c. Collateral d. Conditions Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-2 72. In Scenario 9-2, in judging this C, the net worth of the business will be determined.

The value of the assets minus the value of the liabilities will provide the determination for ______. a. Capacity b. Capital c. Collateral d. Conditions Ans: B KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking NAR: 9-2 73. In Scenario 9-2, Ryan has never borrowed money before; however, he currently has a loan outstanding for his school expenses. Which of the five C’s is judged primarily on the applicant’s past repayment patterns? a. Character b. Capital c. Collateral d. Conditions Ans: A KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-2 74. In Scenario 9-2, Ryan’s inventory will provide a large part of this C. The machines themselves can be pledged as security in order to meet the C of ______. a. Capacity b. Capital c. Collateral d. Conditions Ans: C KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-2 75. In Scenario 9-2, at the present, the economy is growing rapidly. In fact, it is growing so rapidly, there is a continuing discussion that interest rates may need to be raised in order to slow economic growth. These factors refer to which of the five C’s? a. Capacity b. Capital c. Collateral d. Conditions Ans: D KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 9-2

Hatten, Small Business Management 7e SAGE Publishing, 2020

True/False 1. Each business must have its assets in place, which are all those things it needs to operate, before it ever opens its doors.

Ans: T KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Capital is a function of the applicant’s personal financial strength.

Ans: T KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Assets owned by a loan applicant that can be pledged as security for the repayment of the loan constitute collateral.

Ans: T KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. The applicant’s character is not a consideration when being evaluated by a lender.

Ans: F KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Simply having a good idea will not be enough to convince investors to risk their capital. A small business owner must also be able to show that he/she is a competent manager with previous business success.

Ans: T KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Two types of funds are available to the small business owner: debt and equity.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Leverage can enable a small business owner to magnify the potential returns expected.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. In most cases, the sheer strength of a business idea can win full funding for a venture.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. The decision to seek outside funds, either through debt or equity, is relatively unimportant and simple.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Until the debt is repaid, the creditor has a legal claim on a portion of the cash flows of the business.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. A lender may require a compensating balance, which means that the amount of funds is reduced, causing the rate of interest to increase, since the same amount of interest is paid and fewer funds are available.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The prime rate is defined as the rate of interest banks charge their “best” customers.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. A fixed-rate loan typically has a higher interest rate than the initial rate on a variablerate loan.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Ordinarily, the longer the maturity of the loan, the higher the rate of interest.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Most lenders are hesitant to make loans to startup businesses unless a wealthy friend or relative will cosign the loan.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Today, a credit score of 580–690 is necessary for an individual to obtain a business loan.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. A positive covenant spells out what a borrower cannot do when signing a loan agreement.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Commercial banks are the backbone of the credit market.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. A demand note allows the business to borrow and repay funds up to the maximum amount specified in the agreement throughout the year.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Floor planning is a special type of a loan used for financing high-priced inventory like new cars and trucks.

Ans: T KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. If a small business uses its receivables as collateral for a loan in the process known as pledging, the finance company will collect the accounts receivable.

Ans: F KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 22. Factoring has historically been viewed as one of the most desirable approaches to financing.

Ans: F KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Term insurance policies have no borrowing capacity.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. The most active government lender is the Small Business Administration.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Government lending programs exist to stimulate small businesses.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. The 504 loan program provides small businesses with funding for fixed assets through a certified development company when conventional loans are not possible.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. There is no such thing as a guaranteed loan--especially with the SBA. Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Most lenders will expect entrepreneurs to provide equity funds in an amount of at least 35 percent of the business before approving the loan.

Ans: F KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Most new businesses are originally financed with the personal funds of the small business owner.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. If a lender says no to a small business loan application, it is acceptable to ask whether the bank can rework the application so that it meets the lending criteria.

Ans: T KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. About 40 percent of the plans submitted to venture capital firms are ultimately funded.

Ans: F KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Venture capital firms rarely invest in high-tech industries.

Ans: F KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Micromanagement angels own and operate their own business and are looking for ways to diversify their portfolios.

Ans: F KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. List and explain the five C’s of credit.

Ans: Capacity Character Capital Conditions Collateral KEY: Learning Objective: 9.1: Determine the financing needs of your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.1: Funding For Small Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Compare and contrast debt and equity financing.

Ans: Equity supplied by investors in exchange for an ownership position need not be repaid share in the profits allows others a voice in management Debt borrowed from a creditor must be repaid creates leverage that can allow for returns to be magnified creates risk of becoming insolvent can lead to bankruptcy KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Describe three sources of debt financing for a small business owner.

Ans: commercial banks

Hatten, Small Business Management 7e SAGE Publishing, 2020 commercial finance companies factoring accounts receivable insurance companies federal loan programs state and local government lenders trade credit KEY: Learning Objective: 9.2: Define basic financing terminology.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.2: Basic Financial Vocabulary Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. If a potential lender says “no,” what are some actions that a small business manager should take?

Ans: Thank the lender and do not show resentment.

Ask what specific information counted against you.

Ask for specific recommendations or advice.

Give the bank a reason to make a loan.

Ask whether the bank can rework the application.

KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Describe three sources of equity financing.

Ans: personal funds partners family and friends venture capital firms angels small business investment companies stock offerings private placements public offerings KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Explain why companies choose public offerings.

Ans: More funds can be raised through public offerings than through other venture capital methods without imposing the repayment burdens of debt.

Public offerings enhance image.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Wealth can be magnified greatly when owner-held shares are subsequently sold on the market.

KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Explain three considerations a small business owner should keep in mind when choosing a lender or investor.

Ans: size of the lender industry experience desire to support entrepreneurs supportive approach to problems opportunity cost being too anxious KEY: Learning Objective: 9.3: Explain where to look for sources of funding.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 9.3: How Can You Find Capital?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 10: THE LEGAL ENVIRONMENT Multiple Choice 1. The best time for a small business to get a lawyer is ______. a. when the business is in trouble b. during court hearings c. when writing the business plan d. while the business is still an idea Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Most small business problems are split between ______ and ______. a. expenses; revenue b. costs; regulations c. day; night d. employees; location Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. According to the U.S. Department of Commerce, about how much do U.S. businesses lose annually to the counterfeiting of trademarked and copyrighted products? a. $2 million b. $20 million c. $200 billion d. $2 billion Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. Which of the following acts was written to prevent large businesses from forming trusts? a. Clayton Act b. Federal Trade Commission Act c. Fair Debt Collection Practices Act d. Civil Rights Act of 1964 Ans: A KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The act of keeping prices artificially high is referred to as ______. a. monopoly b. collusion c. zoning d. antitrust Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Which of the following is the act that was passed in 1938 to regulate worker’s pay? a. Fair Labor Standards Act b. Worker’s Compensation Act c. Civil Rights Act d. Americans with Disabilities Act Ans: A KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The Civil Rights Act of 1964 prevents discrimination on all of the following grounds except ______. a. sex b. race c. national origin d. pregnancy

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. ______ prevents discrimination based on gender, race, color, religion, or national origin in any terms, conditions, or privileges of employment. a. The Civil Rights Act of 1991 b. The Equality Act c. The Equal Rights Act of 1965 d. The Civil Rights Act of 1964 Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. ______ tries to discourage illegal immigration into the United States by denying employment to aliens and extends coverage of the 1964 Civil Rights Act to foreignsounding or foreign-looking individuals. a. The Civil Rights Act of 1991 b. The Americans with Disabilities Act of 1990 c. The Immigration Reform and Control Act of 1986 d. The Civil Rights Act of 1964 Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The Americans with Disabilities Act was passed to guarantee individuals with disabilities all but which of the following rights? a. the right to obtain and hold a job b. the right to travel on public transportation c. the right to use of telecommunication services d. the right to purchase handicap-operated vehicles Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. A/an ______ is an action that is excessively costly, extensive, substantial, or disruptive, or that would fundamentally alter the nature or operation of the business. a. hardship b. undue hardship c. economic hardship d. financial hardship Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Which of the following may an employer do under the Americans with Disabilities Act? a. question applicants about the severity, nature, or origin of a known disability b. refuse employment due to the employee needing special accommodation c. require drug tests at any time in the employment process d. require medical or physical exams prior to a conditional offer of employment Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Which title under the Americans with Disabilities Act requires all businesses serving the public to make their facilities and services accessible to the disabled? a. Title V b. Title VI c. Title VII d. Title III Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. ______ are available to aid businesses with Americans with Disabilities Act compliance. a. Grants b. Loans c. Tax incentives d. Federal funds Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Arco Advertising employs two individuals who are confined to wheelchairs. The company is required by the Americans with Disabilities Act to provide modifications of the work environment, such as wheelchair ramps, making it possible for the disabled workers to enjoy equal employment opportunities. These modifications are referred to as ______. a. undue hardship b. reasonable hardship c. reasonable accommodation d. undue modification Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 16. ______ is the practice of using different cutoff test scores for different groups. a. Score norming b. Race norming c. Group norming d. Job norming Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The Civil Rights Act of 1991 places the burden of proof on ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. the court system b. the employee c. the employer d. the public Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Workers’ compensation is insurance that provides replacement income and medical expenses to workers who suffer ______. a. work-related injury b. underemployment c. discrimination d. silently Ans: A KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Workers’ compensation premiums are based on two major factors: ______ and ______. a. annual revenue; number of employees b. industry classification; tax bracket c. state business is located; payroll d. industry classification; payroll Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Costs of workers’ compensation to businesses are ______. a. declining b. soaring c. holding constant d. irrelevant since they are paid by employees Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. ______ was passed to try to ensure every working man and woman in the nation safe and healthful working conditions and to preserve human resources. a. OSHAW b. NIOSH c. The Occupational Safety and Health Act of 1970 d. The Workers Compensation Act of 1976 Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The Occupational Safety and Health Administration is the ______ branch that the Occupational Safety and Health Act created. a. enforcement b. research center c. enforcement review board d. information service Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. For businesses with fewer than ______ fulltime employees, there is no health insurance requirement, according to the Health Care Reform Act. a. 10 b. 50 c. 30 d. 100 Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Which of the following individuals are entitled to unemployment compensation? a. Sandy, who quit her job voluntarily b. Lonnie, who was fired for lying to his boss c. Wilbert, who was caught stealing d. Donna, who was laid off from her job for two months Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 25. OSHA requires most employers with ______ or more employees to keep records of occupational injuries and illnesses. a. 3 b. 8 c. 11 d. 50 Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Alexis is looking to open her own business, and she wants to research the local and county requirements for obtaining permits and licenses. Which of the following would be a good resource to consult? a. the CIA b. an immigration attorney c. federal government officials d. her local chamber of commerce Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 27. As an employer, you have all but which of the following choices if cited for a violation by the Occupational Safety and Health Administration? a. appeal the penalties b. seek a variance c. correct the violation d. choose to ignore the citation Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 28. A land buyer interested in beginning a small business should be certain how a piece of property is ______ before buying the land. a. subdivided b. supplied with utilities c. zoned d. accessed Ans: C KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 29. ______ laws control what a business can sell and where it can operate. a. Access b. Sales c. Subdividing d. Zoning Ans: D KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. ______ laws are used to control parking, waste disposal, and sign size and placement. a. Property b. Zoning c. Enhancement

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. Land use Ans: B KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Bankruptcy accomplishes two different objectives. These objectives are which of the following? a. liquidation and termination b. insolvency and termination c. insolvency and reorganization d. liquidation and reorganization Ans: D KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Which of the following methods of bankruptcy would be best for a business that has no hope of getting out of its financial indebtedness? a. Chapter 7 b. Chapter 12 c. Chapter 13 d. Chapter 11 Ans: A KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. In some cases, local zoning commissions may grant a/an ______, which allows businesses to operate without complying with the regulation or without having the regulation be changed. a. variance b. eurozone c. restriction d. breach of contract Ans: A KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 34. The Bankruptcy Abuse Prevention and Consumer Protection Act requires a comparison of the debtor’s income to the ______. a. median income in the individual’s home state b. median national income c. 75th percentile of median income in the individual’s home state d. 25th percentile of median national income Ans: A KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Which of the following methods of bankruptcy would be best for a business that still has some hope of being financially successful? a. Chapter 7 b. Chapter 11 c. Chapter 12 d. Chapter 13 Ans: B KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. Which percentage of all bankruptcy filings are filed under Chapter 11? a. 3 percent b. 5 percent c. 7 percent d. 9 percent Ans: A KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. The reorganization plan under Chapter 11 bankruptcy protects the filer from which of the following? a. foreclosure b. liquidation

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. paying creditors d. credit report damage Ans: A KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Which percentage of all bankruptcy filings are filed under Chapter 13? a. 3 percent b. 10 percent c. 18 percent d. 25 percent Ans: D KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Bankruptcy remains on a credit report for how many years? a. three years b. five years c. seven years d. nine years Ans: C KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Which of the following is not a contract that must be in writing to be enforceable? a. sale of real estate b. contracts paying someone else’s debt c. contracts taking less than one year to perform d. contracts involving sales of goods valued at $500 or more Ans: C KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 41. Which of the following is not one of the four basic conditions or elements that a contract must meet in order to be binding? a. legality b. agreement c. capacity d. formal documentation Ans: D KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. The legality element of a contract states that ______. a. a contract must be intended to accomplish a legal purpose b. a contract must include a legitimate offer and a legitimate acceptance c. something of value must be exchanged between the two parties d. the parties entering into a contract must have the capacity to do so.

Ans: A KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. The agreement element of a contract states that ______. a. a contract must be intended to accomplish a legal purpose b. a contract must include a legitimate offer and a legitimate acceptance c. something of value must be exchanged between the two parties d. the parties entering into a contract must have the capacity to do so Ans: B KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. The consideration element of a contract states that ______. a. a contract must be intended to accomplish a legal purpose b. a contract must include a legitimate offer and a legitimate acceptance c. something of value must be exchanged between the two parties d. the parties entering into a contract must have the capacity to do so Ans: C KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. The capacity element of a contract states that ______. a. a contract must be intended to accomplish a legal purpose b. a contract must include a legitimate offer and a legitimate acceptance c. something of value must be exchanged between the two parties d. the parties entering into a contract must have the capacity to do so Ans: D KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. ______ is a violation of one or more terms of a contract by a party involved in the contract. a. Injunction b. Specific performance c. Compensatory damage d. Breach of contract Ans: D KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. Alice and Bonnie are finalizing negotiations for the sale of Alice’s hair salon. Near the end of the conversation, Bonnie tells Alice, “You have a deal!” This constitutes which element of a contract? a. legality b. agreement c. consideration d. capacity Ans: B KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 48. A door-to-door saleswoman approaches Samantha, a high school student, and tries to pressure her into purchasing a line of cosmetics. Samantha tells the saleswoman that she must first consult with her parents. The saleswoman has violated which element of a contract?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. legality b. agreement c. consideration d. capacity Ans: D KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 49. A/an ______ states that the previous business owner will not start or own a similar business within a specific geographic area for a certain amount of time. a. competition contract b. closed contract c. noncompete covenant d. open covenant Ans: C KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 50. ______ is money awarded by the courts to a party of the contract who has suffered a loss due to the actions of another party. a. Injunction b. Specific performance c. Compensatory damage d. Breach of contract Ans: C KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. A/an ______ is a court order that prohibits certain activities. a. injunction b. specific performance c. compensatory damage d. breach of contract Ans: A KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. ______ is a nonmonetary award granted by the courts to a party of the contract who has suffered a loss due to the actions of another party. a. Injunction b. Specific performance c. Compensatory damage d. Breach of contract Ans: B KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 53. The ______ patent covers inventions that are unique or have new uses or functions. a. utility b. design c. plant d. novelty Ans: A KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. The ______ patent protects unique or new forms or shapes of a product. a. utility b. design c. plant d. novelty Ans: B KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 55. ______ is a broad term that refers to the product of some type of unique human thought. a. Copyright b. Patent property c. Intellectual property d. Trademark

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. John and Robert have been working together for the last three years on building a prototype for a new type of hand glider that has modified wings allowing for longer flights. What type of patent should they obtain? a. design patent b. utility patent c. plant patent d. trademark patent Ans: A KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 57. The ______ patent covers living plants that can be grown or reproduced. a. utility b. design c. plant d. novelty Ans: C KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 58. A/an ______ looks for existing patents or inventions that are or may be similar to another product. a. patent application b. patent search c. idea search d. invention search Ans: B KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 59. Sinead is an up-and-coming folk singer who just recorded her first solo album on a relatively obscure record label. To protect her music from illegal and unauthorized use, which of these should Sinead pursue? a. patent b. copyright c. trademark d. IPO Ans: B KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 60. A/an ______ is a registered and protected brand. a. parent corporation b. symbol c. trademark d. IPO Ans: C KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 10-1 Scenario 10-1. Franky’s Lumber Yard works with primarily small construction companies building family homes. Franky has a serious cash flow problem. She has many customers with account balances over 90 days past due. Furthermore, the economy has been growing rapidly and interest rates have just been raised. New home construction is likely to dramatically decrease. This will make it even more difficult for her customers to pay their bills. Owing in large part to the expense of her inventory and her uncollected accounts receivable, it is highly likely Franky is insolvent.

NARREND 61. In Scenario 10-1, if Franky files for a Chapter 7 bankruptcy, then ______ will occur. a. voluntary reorganization b. involuntary reorganization c. liquidation d. repayment over a three- to five-year period Ans: C KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking NAR: 10-1 62. In Scenario 10-1, what number of bankruptcy filings occur under Chapter 7? a. two out of four b. three out of four c. two out of three d. four out of eight Ans: B KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 10-1 63. In Scenario 10-1, which bankruptcy filing would keep creditors from foreclosing on debts during the reorganization period while including a repayment schedule for current creditors with a plan for operating more profitably in the future? a. Chapter 7 b. Chapter 11 c. Chapter 13 d. Chapter 22 Ans: B KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-1 64. In Scenario 10-1, which bankruptcy filing would allow Franky to pay back creditors over a three- to five-year period? a. Chapter 7 b. Chapter 11 c. Chapter 13 d. Chapter 22 Ans: C KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-1 NARRBEGIN: 10-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 Scenario 10-2. Kimberly is the mother of three small children, ages four, three, and one.

After hours of picking up small toys, she has come up with a wonderful idea. Her new machine would be somewhat like a vacuum cleaner in that it would pick up toys.

However, it would have a very large opening so that all toys would fit, within reason.

This new machine would then sort the toys according to size and weight into a compartment attached to the machine. Kimberly sees this as a way to reduce hours of time for mothers and day care centers.

NARREND 65. In Scenario 10-2, in order to protect this new idea from her competition, Kimberly should apply for a ______. a. patent b. trademark c. brand name d. copyright Ans: A KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-2 66. In Scenario 10-2, for what time period would a patent protect Kimberly’s invention? a. 5 years b. 10 years c. 17 years d. 25 years Ans: C KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-2 67. In Scenario 10-2, which of the following types of patents should Kimberly choose? a. utility patent b. design patent c. plant patent d. form patent Ans: A KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking NAR: 10-2 68. In Scenario 10-2, Kimberly’s invention would pass all but which of the following patent tests? a. Is it useful? b. Is it novel? c. Is it a machine, process, manufacture, chemical composition, or a combination? d. Is it producing new or unexpected results?

Ans: D KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module: 10.4 Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-2 69. In Scenario 10-2, Kimberly registers the name for her invention, Kimberly’s Kid PickerUpper. The name now falls into which of the following categories? a. brand b. trademark c. copyright d. family brand Ans: B KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-2 70. The three forms of business ownership include all but which of the following? a. sole proprietorships b. partnerships c. corporations d. joint ventures Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 71. Which of the following is the most common form of business ownership? a. sole proprietorships

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. partnerships c. corporations d. joint ventures Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 72. Which of the following forms of business ownership brings in the most businessgenerated revenue? a. sole proprietorships b. partnerships c. corporations d. acquisitions Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 73. The trends for small businesses in the United States from 1980 to 2003 show the greatest increase in the number of ______. a. partnerships b. public corporations c. very small businesses d. private corporations Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 74. Les, a certified public accountant, is looking to open a new accounting firm.

Previously, Les was part-owner of a firm where he fought regularly with other co-owners about management decisions. If he wants to avoid such conflicts and promote independence, which of these should he choose? a. sole proprietorship b. partnership c. corporation

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. a public company Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 75. Which form of business ownership grew most rapidly from 1980 to 2006 as evidenced by the number of business tax returns filed? a. sole proprietorships b. partnerships c. corporations d. mergers Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 76. Which form of business ownership is the single best form in which to organize a small business? a. sole proprietorships b. partnerships c. corporations d. there is no single best form Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 77. The following are advantages of which form of business ownership: complete control over the business, few legal requirements and restrictions, and taxed as a single entity? a. sole proprietorship b. partnership c. corporation d. joint venture Ans: A

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 78. Which form of business organization is easiest to open and easiest to close? a. partnership b. sole proprietorship c. corporation d. a public company Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 79. The tax advantage for sole proprietorships does not last forever. The businessperson must make money in order to be considered a business. Money must be made for how many years in order to be considered a business and not a hobby by the IRS? a. two out of five years b. three out of five years c. four out of five years d. four out of six years Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 80. The single biggest disadvantage of sole proprietorships is which of the following? a. limited resources b. limited skills c. unlimited liability d. double taxation Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 81. Which disadvantage of sole proprietorships centers around the fact that capital is difficult to raise? a. limited resources b. limited skills c. unlimited liability d. lack of continuity Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 82. Which of the following is created to complete a specified purpose and is limited in duration? a. sole proprietorship b. joint venture c. C corporation d. S corporation Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 83. The following are advantages of which form of business ownership: pooled talent, pooled resources, easy to form, and tax advantages? a. sole proprietorships b. partnerships c. corporations d. acquisitions Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 84. A business structure in which the business owners share the management and all of the risk of a business is called a ______. a. sole proprietorship b. general partnership c. limited partnership d. corporation Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 85. The following are disadvantages of which form of business ownership: unlimited liability, management conflict potential, and less independence? a. sole proprietorships b. partnerships c. corporations d. mergers Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 86. Alice is co-owner of a company where she has unlimited liability. However, there are three additional co-owners within the same company that have limited liability. This company can best be described as a/an ______. a. unlimited partnership b. limited partnership c. uniform partnership d. limited-liability company Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 87. Without a written agreement, a partnership operates according to the rules of the states under the ______. a. Uniform Partnership Act

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. State Regulated Partnership Act c. Federal Partnership Act d. Small Business Administration Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 88. In a limited partnership, at least one partner ______. a. has unlimited liability b. has limited liability c. has raised 50 percent more capital than the other partners d. has given up any tax advantages Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 89. The “right of first refusal” refers to which of the following? a. Partners may refuse to let one of the partners leave the business. b. Partners may allow one partner to have only limited liability. c. Partners may have first chance at buying the selling partner’s shares in the business. d. Partners may refuse to pay out the profits of the business and instead reinvest the money back into the business.

Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 90. A business structure in which one or more of the owners may be granted limited liability as long as one partner is designated a general partner is called a ______. a. general partnership b. fragmented partnership c. limited partnership d. segmented partnership Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 91. If the partners in a partnership have not written a legal agreement, which act helps to settle any problems that may arise? a. SBA b. SEC c. UPA d. FTC Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 92. A contract between partners of a business that defines obligations and responsibilities of the business owners is called the ______. a. UPA b. incorporation of the partnership c. article of partnership d. partnership contract Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 93. Corporations that sell shares of stock to the public and are listed on the stock exchange are referred to as ______. a. divested corporations b. entrepreneurial corporations c. closely held corporations d. public corporations Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 94. A partnership that is created to complete a specified purpose and is limited in duration is called a ______. a. general partnership b. limited partnership c. corporation d. joint venture Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 95. Which form of business ownership is the most complicated to form? a. sole proprietorships b. partnerships c. corporations d. subsidiaries Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 96. Sylvia is looking to start her own sporting goods manufacturing company, but the venture will require a great deal of start-up investment. Which of these should she choose to ensure adequate financing? a. partnership b. sole proprietorship c. corporation d. small independent business Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 97. Which of the following forms of business ownership has the following advantages: limited liability, increased access to resources, and easy transfer of ownership? a. sole proprietorship b. partnership c. corporation d. joint venture Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 98. Which of the following forms of business ownership has the following disadvantages: expensive to start, complex to maintain, and double taxation? a. sole proprietorship b. partnership c. corporation d. closely held corporation Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 99. The legal and administrative costs are one of the major disadvantages of which form of business ownership? a. sole proprietorships b. partnerships c. corporations d. general partnerships Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 100. What types of business entities are subject to double taxation? a. sole proprietorships b. partnerships c. public corporations

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. private corporations Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 101. A type of corporation that taxes the owners as partners yet provides more flexibility is called a/an ______. a. nonprofit corporation b. S corporation c. limited partnership d. limited-liability company Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 102. A special type of corporation in which the owners are taxed as partners is called a/an ______. a. nonprofit corporation b. S corporation c. limited partnership d. limited-liability company Ans: B KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 103. What types of corporations largely depend on grants from private foundations and public donations to meet expenses? a. nonprofit corporations b. limited-liability companies c. S corporations d. C corporations Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 10-3 Scenario 10-3. Mary Manting is opening her new business. She is offering a day camp/day care summer experience for a newly developed suburb in upscale Yolando.

She has little capital and little management experience, and she is concerned with the possibility of lawsuits due to the nature of her business and the unlimited liability that she could then face. She comes to you for business advice.

NARREND 104. In Scenario 10-3, what would be the major advantage of establishing her business as a sole proprietorship? a. independence b. unlimited resources c. pooled talents d. double taxation Ans: A KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-3 105. In Scenario 10-3, what would be the major advantage of establishing her business as a general partnership? a. independence b. limited liability c. pooled talents and resources d. double taxation Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-3 106. In Scenario 10-3, which form of business ownership should she choose? a. sole proprietorship b. partnership

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. corporation d. sole partnership Ans: C KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-3 107. In Scenario 10-3, what will be the biggest advantage of establishing her business as a corporation? a. unlimited liability b. independence c. ease of setup d. limited liability Ans: D KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 10-3

True/False 1. According to the text, laws ensure fair competition, allow contracts to be enforced, and protect consumer rights.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. With a minimal education, the wording of most laws and regulations is easy to understand.

Ans: F KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 3. The best time for a small business to get a lawyer is when the business is in trouble.

Ans: F KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Competition decreases the need for government intervention in the market.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Antitrust laws were written to prevent large businesses from forming trusts.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. More and more, U.S. laws are becoming increasingly based on the rule of caveat emptor: “Let the buyer beware.”

Ans: F KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Executive workers and professional employees may be exempt from the minimum wage and overtime pay requirements of the Fair Labor Standards Act. Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. The Americans with Disabilities Act of 1990 considers recovering drug addicts, alcoholics, and individuals with HIV or AIDS as those covered by the employment discrimination provision.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 9. To be considered sexual harassment, only those directly affected by the actions can file a suit.

Ans: F KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 10. The beginning point for determining small business compliance with the ACA is the number of full-time employees.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 11. Bankruptcy is a remedy for becoming solvent.

Ans: F KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Chapter 11 bankruptcy provides a second chance for a business that is in financial trouble but still has potential to succeed.

Ans: T KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Chapter 7 bankruptcy means that the business will be liquidated.

Ans: T KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Other businesses that declare bankruptcy may provide an opportunity for you.

Ans: T KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. If a business involves the sale or preparation of food, a business owner will need to obtain health department permits and also be subject to regular inspections.

Ans: T KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 16. In most cases, declaring bankruptcy for a failed business will leave the business owner penniless and homeless.

Ans: F KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. About three out of every four bankruptcy filings take place under Chapter 11.

Ans: F KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 18. Chapter 13 bankruptcy allows individuals, including small business owners, who owe less than $250,000 in unsecured debts and secured debts of less than $750,000 to pay back creditors over a three- to five-year period.

Ans: T KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 19. Under Chapter 13 bankruptcy, a plan must be submitted to a bankruptcy judge that shows how most types of the debt will be paid in full.

Ans: T KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. A contract is a promise that is enforceable by law.

Ans: T KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Contract law comprises the body of laws that are intended to ensure parties entering into contracts comply.

Ans: T KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. A contract must be in writing to be enforceable.

Ans: F KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 23. Capacity is one of the four basic elements of a contract.

Ans: T KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Contracts involving the sale of real estate must be in writing.

Ans: T KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The payment of someone else’s debt should always be in writing.

Ans: T KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Intellectual property is a product or some type of human thought that is created through the mental skills of a person.

Ans: T KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. A patent is a form of protection for intellectual property provided to an inventor for a period of 17 years.

Ans: T KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. The three types of patents in existence today are utility patents, design patents, and plant patents.

Ans: T KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. To qualify for a patent, an invention does not necessarily have to provide some legal utility.

Ans: F KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. A novel item or creation meets one of the four requirements for obtaining a patent.

Ans: T KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. A copyright protects literary, musical, or artistic works for the period of the creator’s life plus 125 years.

Ans: F KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. A copyright is synonymous with a patent.

Ans: F KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. A trademark is a form of protection for intellectual property provided to the owner of a brand name or symbol.

Ans: T KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 34. Patents, copyrights, or trademarks obtained in the United States will provide the same protection in foreign countries.

Ans: F KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. The most common form of business in the United States today is the corporation.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. A sole proprietorship is owned by two or more persons.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. A major advantage of a sole proprietorship is that the owner has complete control over the business.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. The major disadvantage of a sole proprietorship is limited liability.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 39. The biggest advantage of partnerships is the pooling of talents and resources.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. In a partnership, if both partners bring the same qualities to the business, then one of them is probably not needed.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Although the ability to raise capital is better with a partnership than with a proprietorship, a partnership still cannot usually gather as many resources as a corporation.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 42. In a partnership, the partners will be held liable only for their own negligence.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. If a partner leaves, the partnership is dissolved and the remaining partners can either find a new partner or terminate the business.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. One of the most serious problems that can threaten a partnership is managerial conflict.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Foresight in writing articles of partnership can solve many partner problems in the future.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. A closely held corporation publicly trades its shares of stock on a major auction market.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 47. A form of business ownership where the business is owned by a limited group of people and the stock is not traded publicly is called a closely held corporation.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 48. Limited liability is the major advantage of forming a business as a corporation.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. C corporations and S corporations are taxed the same.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. A document describing a business that is filed with the state in which a business is formed is referred to as articles of incorporation.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 51. C corporations provide individuals with limited-liability protection of a corporation while allowing the tax advantages of a partnership.

Ans: F KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 52. LLCs can be an attractive form of ownership for small businesses.

Ans: T KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Short Answer 1. Discuss three laws that affect small businesses.

Ans: Equal Pay Act of 1963 ∙ Family and Medical Leave Act of 1993 Civil Rights Act of 1991 Americans with Disabilities Act of 1990 Civil Rights Act of 1964 Immigration Reform and Control Act of 1986 Occupational Safety and Health Act of 1970 KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Discuss the areas that are covered by OSHA workplace standards.

Ans: exposure to hazardous chemicals ∙ first aid and medical treatment noise levels protective gear fire protection worker training, workplace temperatures, and ventilation KEY: Learning Objective: 10.1: Name the laws and regulations that affect small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.1: Small Business and the Law Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Discuss the three primary types of bankruptcy that affect small businesses.

Ans: Chapter 7 the business is liquidated Chapter 11 can be filed voluntarily or involuntarily reorganization plan is filed that includes a repayment schedule Chapter 13 ∙ repayment plan over the next three to five years KEY: Learning Objective: 10.2: List and explain the types of bankruptcy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.2: Bankruptcy Laws Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Discuss two of the four elements of a binding contract.

Ans: legality

Hatten, Small Business Management 7e SAGE Publishing, 2020 consideration agreement capacity KEY: Learning Objective: 10.3: Describe the elements of a contract.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.3: Contract Law For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Compare and contrast the three types of patents.

Ans: utility patent design patent plant patent KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Compare and contrast patents, copyrights, and trademarks.

Ans: Patents grants exclusive rights to make, use, and sell an invention for a period of 17 years utility patents--new use or function design patents--unique or new form or shape plant patent--covers living plants Copyrights ∙ the protection of literary, musical, or artistic works lasts for the life of the author plus 50 years Trademarks a legally protected name, term, symbol, design, or combination of these elements lasts as long as it is in use KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Discuss two aspects of global protection of intellectual property.

Ans: it is a difficult process U.S. patents, copyrights, and trademarks do not apply in most foreign countries. need separate protection in each country check filing regulations before the country is entered if filing does not occur before entering the market, the small business person may lose the right to do so KEY: Learning Objective: 10.4: Discuss how to protect intellectual property.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.4: Laws to Protect Intellectual Property Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 8. Compare and contrast a sole proprietorship, a partnership, and a corporation.

Ans: Sole proprietorship--one owner, independence, control over one’s life, unlimited liability, hard to raise capital, and tax benefits Partnerships--two or more persons, pooled talents, pooled resources, unlimited liability, and tax Corporation--legal entity, easier access to resources, limited liability, harder to control, and double taxation KEY: Learning Objective: 10.5: Describe the three main forms of ownership--sole proprietorship, partnership, and corporation--and their unique features.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 10.5: Forms of Business Organization Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 11: SMALL BUSINESS MARKETING: STRATEGY AND RESEARCH Multiple Choice 1. When a business attempts to provide its customers with the product or service that the customer wants rather than simply trying to sell goods and services, the business is applying ______. a. the production concept b. the marketing concept c. a focus on quality d. a focus on innovation Ans: B KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Peter Drucker stated that businesses have ______ basic functions. a. two b. three c. four d. five Ans: A KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The philosophy where companies concentrate their efforts on the product being made is known as which of the following philosophies? a. “If you make it, they will buy it” philosophy b. “If they won't buy it, why make it” philosophy c. production concept d. marketing concept Ans: C KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. The book by Seth Godin discussed at the beginning of the chapter describes a unique approach to visualizing competitive advantage. What is its title analogy? a. Pink Hearts b. Purple Cows c. Yellow Dogs d. Red Ryders Ans: B KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The philosophy of a business in which the wants and needs of customers are determined before goods and services are produced is referred to as the ______. a. marketing concept b. production concept c. relationship concept d. demand concept Ans: A KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Employees at People 1st Credit Union are encouraged by management to establish long-term buyer–seller relationships. They strive to learn each customer’s name so that they can be greeted as they walk in the door. This is an example of which business concept? a. marketing concept b. production concept c. relationship marketing d. customer marketing Ans: C KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 7. A ______ can be defined as what the marketing efforts of a business intend to accomplish and how the business will achieve them. a. management strategy b. financing strategy c. marketing strategy d. company strategy Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Why might a marketing strategy be especially important to a small business in a service industry? a. some services are ones the customer could perform for themselves such as lawn mowing b. it is more difficult to establish a brand image with intangible services than tangible products c. both A and B d. none of these Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 9. The number of products a business plans to sell during a future time period is known as the ______. a. product projections b. sales predictions c. sales forecast d. sales estimates Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. A sales forecast based on estimation of daily sales that are then projected for weeks, months, and years with seasonal adjustments is using what approach?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. build-up b. guesstimate c. break-down d. pro forma Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. William, owner of a small hardware store, likes to forecast sales to better prepare for seasonal fluctuations. He identifies as many target markets as possible and predicts the sales for each based on one-day sales at different times of the year. He then combines the predictions for the various segments to create a total sales forecast. Which sales forecasting method is William using? a. build-up method b. break-down method c. qualitative method d. quantitative method Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 12. A forecasting method that uses historical sales data to identify patterns over a period of time is referred to as ______. a. build-up method analysis b. regression analysis c. time series analysis d. qualitative analysis Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. A sales forecast based on an estimate of total market potential for a specific market and projecting the market share a business can capture in any given area at any given time is using what approach?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. build-up b. guesstimate c. break-down d. pro forma Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. A sales forecast that uses extensive historical sales data looking for a relationship between a dependent variable (past sales) and different independent variables is using what approach? a. build-up b. regression analysis c. break-down d. time series Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Market segmentation is the process of dividing the total market for a product into ______. a. general markets b. novice markets c. target markets d. mass markets Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Samantha, an intern at an advertising agency, is asked to review how local markets compare based on geographic, demographic, and psychographic differences.

Samantha learns that these are most commonly referred to as ______. a. population segments b. segmentation variables

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. diversity statistics d. market segments Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 17. The most common marketing strategy of the 1960s was ______. a. individualized marketing b. niche marketing c. services marketing d. mass marketing Ans: D KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Breaking down populations of people into groups or target markets is referred to as ______. a. consumer recognition b. market diversity c. market segmentation d. regression analysis Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Babies ’n Things is an independently owned retail store that aims to compete with the local supercenter by targeting exclusively to young mothers in the upper-middle class. Babies ’n Things is using which marketing strategy? a. individualized marketing b. niche marketing c. services marketing d. mass marketing Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 20. Adjusting the marketing mix of a business to treat individual persons as separate target markets is known as ______. a. mass marketing b. niche marketing c. individualized marketing d. personalized marketing Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Segmenting populations of people into smaller target markets is known as ______. a. individualized marketing b. personalized marketing c. sub-target marketing d. niche marketing Ans: D KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The average American household spends approximately ______ hours per week watching television. a. 20 b. 50 c. 65 d. 92 Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 23. Small businesses are interested primarily in which of the following? a. why people desire products b. why people want products c. why people purchase products d. why people comparison shop for products Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. The black box stimulus-response model of consumer behavior is based upon the work of ______. a. Henry Mintzberg b. Frederic Herzberg c. Henri Fayol d. Kurt Lewin Ans: D KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The black box title is appropriate because it represents ______. a. what goes into the customer’s mind that remains hidden from the business b. what customers do not want others to know c. what businesses do not want others to know d. what goes into the mind of the business that remains hidden from customers Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Closeness to customers is a/an ______ to small businesses in understanding the internal influences that are occurring in customers’ minds. a. disadvantage b. advantage

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. method d. competitive advantage Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. The steps of the decision-making process in order are ______. a. purchase, post-purchase evaluation, problem recognition, information search, and alternative evaluation b. information search, problem recognition, alternative evaluation, purchase, and postpurchase evaluation c. problem recognition, information search, alternative evaluation, purchase, and postpurchase evaluation d. problem recognition, alternative evaluation, information search, purchase, and postpurchase evaluation Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 28. Which of the following is a black box influence that is internal to the consumer’s mind? a. demographic factors b. lifestyle c. method of payment d. motives and needs Ans: D KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. The first step in the decision-making process that leads to a purchase is ______. a. problem recognition b. information search c. alternate evaluation d. post-purchase evaluation

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. ______ is the remorse that potential buyers feel after making a major purchase. a. Purchase remorse b. Cognitive dissonance c. Post-purchase stress d. Cognitive dispersion Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Sandra is excited about going shoe shopping with her friends later in the day.

Before she goes, she thinks about the stores she wants to visit and the brands that she would like to try. These are all part of Sandra’s ______. a. evoked set b. cognitive dissonance c. black box d. market segment Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 32. Buyer’s remorse is also known as ______. a. evoked set b. cognitive dissonance c. black box consumer behavior d. market segmentation Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. ______ is a way to answer questions about customers’ changing wants and needs. a. Market search b. Market research c. Market tests d. Market analysis Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. ______ can be defined as the function which links consumers to marketers in order to improve marketing efforts. a. Market research b. Market tests c. Market strategies d. Market analysis Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Most businesses spend between ______ and less than ______ conducting marketing research on their last product or service launched. a. one to six months; $1,000 b. seven to eight months; $1,500 c. one to six months; $1,500 d. seven to eight months; $1,000 Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. One creative discount merchant conducted an in-store marketing research project using ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. trash b. finger paint c. peanuts d. marshmallows Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. The primary factor that looms as a reason for an increase in the amount of time and money that small businesses should spend on marketing research is ______. a. poor economy b. lawsuits c. competition d. changing conditions Ans: D KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 38. The five steps of the marketing research process, in order, are which of the following? a. develop plan, identify problem, collect data, analyze data, and draw conclusions b. identify problem, develop plan, collect data, analyze data, and draw conclusions c. identify problem, collect data, develop plan, analyze data, and draw conclusions d. draw conclusions, identify problem, develop plan, analyze data, and collect data Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 39. A clearly stated, concisely worded problem must be created in order to generate ______. a. a plan b. a conclusion c. usable information d. data

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Many people have a hard time with identifying the problem, the first step of the marketing research process, because they ______. a. are novices b. are too experienced to follow the correct procedures c. confuse problems with symptoms d. draw conclusions too quickly Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. ______ sources of information should be checked first since they are less expensive. a. Primary b. Preliminary c. Secondary d. Subsequent Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Secondary data can be defined as being ______. a. data sources which are not as good as the initial data found b. data sources which already exist c. data sources which should be listed after primary data sources in the bibliography d. data sources which must be collected by the researcher and analyzed Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Alex is creating a marketing plan for his best friend’s restaurant. He visits the local library to gather data on the restaurant industry. Alex is collecting what kind of data? a. primary data b. secondary data c. tertiary data d. qualitative data Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 44. Marketing data that a business collects for its own specific purposes is referred to as ______. a. primary data b. secondary data c. tertiary data d. quantitative data Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Arthur, a grocery store manager, politely asks customers to fill out a three-question survey about their shopping experience as they are leaving the store. The data collected from these surveys would best be described as ______. a. tertiary data b. secondary data c. primary data d. relative data Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 46. Primary data that cannot be analyzed statistically is called ______. a. quantitative data b. qualitative data c. objective data d. perfect data Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 47. Potential problems with ______ is that it may not be specific or detailed enough for the needed purpose. a. preliminary information b. primary information c. secondary information d. subsequent information Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. Qualitative data produces useful results if the researcher is looking for ______. a. a yes or no answer b. a numerical bottom line answer c. open-minded responses to probing questions d. a statistical analysis Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. The process of determining what the responses to research mean is referred to as ______. a. problem identification b. information overload c. information inquiry d. data analysis

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. Marketing research can provide a business with a picture of ______. a. what people have wanted in the past from products b. what people want in the future from products c. what people currently want from products d. what people ultimately will always want from products Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 51. Marketing research is good for which of the following? a. fine tuning concepts for known products b. fine tuning concepts for products to be invented c. fine tuning new concepts for old products d. gathering data about what consumers will want in the future Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. Marketing research that enables you to be proactive is important because ______. a. you need to know what has happened in the past b. you need to identify who is to blame for anything that has gone wrong c. both A and B d. you need to know what to do in the future Ans: D KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 NARRBEGIN: 11-1 Scenario 11-1. Lori has just graduated from Willy Wonka Candy College. Lori owns her own candy store and has envisioned a new flavor of lollipop for her candy store. The new flavor will be a swirl of other flavors--a complete flavor thrill. However, she is not sure if her customers will purchase the new lollipop. Lori decides to consult some of her college marketing textbooks for information.

NARREND 53. In Scenario 11-1, Lori needs to conduct ______. a. a financial statement analysis b. marketing research c. market tests d. market analysis Ans: B KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-1 54. In Scenario 11-1, Lori can expect to spend approximately ______ and ______ conducting her research project. a. one to six months; $1,000 b. seven to eight months; $1,500 c. one to six months; $1,500 d. seven to eight months; $1,000 Ans: A KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-1 55. In Scenario 11-1, Lori should search for which of the following types of data first, since it is less expensive? a. primary b. preliminary c. secondary d. subsequent Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-1 56. In Scenario 11-1, Lori may face a problem if she chooses ______ data since it may not be specific or detailed enough to suit her needs. a. primary b. preliminary c. secondary d. subsequent Ans: C KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-1 NARRBEGIN: 11-2 Scenario 11-2. George is the small business owner of George’s Gun and Sports Equipment. He has been in business for 23 years providing hunting and sports equipment. His business, initially located in San Francisco, has been expanding rapidly over the last five years. The rapid expansion has been attributed to the fine TQM techniques applied at every outlet. His business can now be found in almost every major city in the nation. George has conducted a marketing research project and has found that a market for his service also exists outside his home country. George would like to apply TQM techniques to his global expansion, providing he decides to expand into other nations.

NARREND 57. In Scenario 11-2, George should have an estimate of how many customers his business will service in the coming year. This would be known as a ______. a. sales analysis b. service analysis c. sales forecast d. service estimate Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-2 58. In Scenario 11-2, if George were to adjust his marketing mix to treat individual clients as separate target markets, he would be using ______. a. mass marketing b. niche marketing c. individualized marketing d. standardized marketing Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-2 NARRBEGN: 11-3 Scenario 11-3. Mark is considering purchasing a new pickup truck. The model that he is looking at features an all new diesel engine, state of the art design, and beautiful upholstery. The electronics package and options have all been updated to the point where there are not many more items that Mark could have installed on his new truck.

He likes everything about the truck except the price tag. The price could be lowered if Mark would remove some of the options, but he must have them all to maintain his image.

NARREND 59. In Scenario 11-3, what approach would you use to help Mark? a. focus on all the positive features of the product and help him ignore any negatives b. recognize that Mark cannot get everything he wants and forget trying to sell to him c. try to redirect Mark into a different product d. apply the marketing concept by helping Mark through his decision making process Ans: D KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-3 60. In Scenario 11-3, the dealership that carries Mark’s new truck will not know everything that goes through Mark’s mind as he makes his purchasing decision. This is known as ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. the internal consumer b. the black box c. customer deception d. hidden consumer behavior Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-3 61. In Scenario 11-3, the dealership could find information on Mark’s behavior from all but which of the following fields of education? a. psychology b. sociology c. theology d. biology Ans: C KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-3 62. In Scenario 11-3, the remorse that Mark is likely to feel after purchasing his new truck is known as ______. a. cognitive Dissonance b. post-purchase stress c. purchase remorse d. cognitive dispersion Ans: A KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 11-3 63. In Scenario 11-3, the product alternatives that enter Mark’s mind when he considers purchasing a new truck are called the ______. a. elicited set

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. evoked set c. analyzed set d. proper set Ans: B KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking NAR: 11-3

True/False 1. Marketing is more than selling or advertising.

Ans: T KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. According to Peter Drucker, the two basic functions of business are marketing and innovation.

Ans: T KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Business began adopting the marketing concept in the 1970s.

Ans: F KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Purple cows represent the creation of a competitive advantage.

Ans: T KEY: Learning Objective: 11.1: Explain the importance of marketing in managing small businesses.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 11.1: Small Business Marketing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Marketing strategies should state what should be accomplished and the process to be used to achieve that goal.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Marketing objectives can be broken into two groups: marketing performance objectives and marketing support objectives.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Your sales forecast will affect all sections of your marketing plan.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. The build-up method of forecasting sales begins with an estimate of the total market potential for a specific product or an entire industry.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Market segmentation is the process of dividing the total market for a product into identifiable groups or target markets.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. In order to identify the most attractive target markets for a business, characteristics that affect the buying behavior of people should be analyzed.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Characteristics or ways to group people which make them more likely to purchase a product are known as segmentation variables.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Treating entire populations of people as potential customers for specific products is known as niche marketing.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Two factors leading to more individualized marketing are clutter and technology.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. Niche marketing occurs when the marketing mix is adjusted to treat individual persons as separate target markets.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Whereas market segmentation tells a business owner who might buy the product, developing an understanding of consumer behavior is helpful to learn why people buy the product.

Ans: T KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The product alternatives that come into a consumer’s mind when considering a purchase are called the elicited set.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Cognitive dissonance is the feeling of internal satisfaction that follows a major purchase.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. The final step in the consumer purchase decision-making process is the actual purchase.

Ans: F KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Marketing research links marketers to suppliers.

Ans: F KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. One of the major advantages that large businesses have over small businesses is close customer contact.

Ans: F KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Marketing research conducted by small businesses is always formal and intense.

Ans: F KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Businesses that emerge as winners are those that have been proactive rather than reactive.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Whenever there is a marketing “problem,” something is always wrong.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Conducting market research involves a logical five-step process.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Telephone interviews, personal interviews, and mail surveys are methods that small businesses often use to gather primary data.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Market research that does not lead to some type of action is useless.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Marketing research should be used with caution.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. Many people have difficulty identifying a problem because they confuse problems with symptoms.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. There are two basic types of customer needs; those that customers can describe and those that customers have without realizing it.

Ans: T KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Marketing research is most useful when customer needs are unspoken or markets are unserved.

Ans: F KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 11.3: Market Research Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Describe at least three market segmentation strategies that may be adopted by a business owner.

Ans: mass marketing niche marketing individualized marketing KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe the black box model of consumer behavior.

Ans: Demonstrates how a person’s behavior is determined or affected by the interactions of personal influences like inner needs, thoughts and beliefs, plus a variety of external environmental factors.

Hatten, Small Business Management 7e SAGE Publishing, 2020 The black box represents what goes on in the customer’s mind that remains hidden from the small business owner.

The model demonstrates the wide variety of internal and external factors that influence consumer behavior.

KEY: Learning Objective: 11.2: Describe the process of developing a small business marketing strategy.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.2: Marketing Strategies For Small Businesses Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. List four steps that should be accomplished when planning a market research project.

Ans: Identify the types of information needed.

Identify the primary and secondary sources of data.

Select a sample that represents the population being studied.

Select a research method and measurement technique.

KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Explain three of the five steps in the marketing research process.

Ans: identify the problem develop a plan collect data analyze data draw conclusions KEY: Learning Objective: 11.3: Discuss the purpose of the market research process and the steps involved in putting it into practice.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 11.3: Market Research Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 12: SMALL BUSINESS MARKETING: LOCATION Multiple Choice 1. The series of intermediaries a product passes through when going from producer to supplier is known as ______. a. direct channels b. distribution channels c. warehousing d. shelf life Ans: B KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Of the Four P’s of the marketing, ______ is especially significant for business because an effective distribution system can make or save a small business. a. Product b. Place c. Price d. Promotion Ans: B KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Through a/an ______ distribution channel, products pass through various intermediaries before reaching the consumer. a. direct b. linear c. indirect d. nonlinear Ans: C KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. Sandra visits the local farmer’s market every Friday during the summer, where she picks up fresh produce that was grown by the same farmers who are there to sell the goods. The farmer’s market where Sandra likes to shop illustrates what type of distribution channel? a. direct b. closed system c. indirect d. nonlinear Ans: A KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 5. The use of two or more channels to distribute the same product to the same target market is referred to as ______. a. direct channel distribution b. indirect channel distribution c. multipurpose distribution d. dual distribution Ans: D KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. ______ cause the product to go directly from producers to consumers. a. Direct channels b. Indirect channels c. Distribution channels d. Streamline channels Ans: A KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Which of the following represents clients who buy or sell specialized goods or seasonal products and do not take title to the goods sold?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. agents b. brokers c. wholesalers d. retailers Ans: B KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Of the options listed, the most important decision that a small business owner makes is the choice of ______. a. the hours to be open b. the location of the business c. the decor of the building d. the paint color for the walls Ans: B KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. The key word in evaluating a channel of distribution is ______. a. location b. plastics c. competition d. efficiency Ans: D KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. You can do away with distribution intermediaries, but you cannot do away with their ______. a. transportation b. channel c. profit d. function Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. An intermediary who brings buyers and sellers together and facilitates the exchange is known as a/an ______. a. wholesaler b. broker c. agent d. retailer Ans: C KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Wytt Foods Inc. buys food products in bulk from various producers and resells them to foodservice businesses across the region. Wytt Foods can best be described as a/an ______. a. wholesaler b. manufacturer c. agent d. retailer Ans: A KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 13. A small business owner should begin the site selection process by asking which of the following questions? a. What region would be best? b. What state within the region would be best? c. What city within that region would be best? d. What specific site within that city will work for the business?

Ans: A KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Which of the following questions is the last question that should be asked when determining the best location for a business? a. What region would be best? b. What state within the region would be best? c. What city within that region would be best? d. What specific site within that city will work for the business?

Ans: D KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The following criteria are essential to analyze when evaluating a potential ______ for a business: price and availability of land and water, the labor pool, access to customers, and proximity of suppliers. a. target market b. location c. trademark d. brand name Ans: B KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 16. The United States is a collection of ______ markets rather than one big market. a. local b. regional c. local and regional d. national Ans: C KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 17. Neighborhoods are typically comprised of people who are ______. a. very similar b. very different c. a mixture of types of people d. different in their religious beliefs Ans: A KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. A database that distinguishes differing neighborhood types by accurate geodemographic segmentation is known as ______. a. Neighborhood Type Inventory b. Potential Rating Index for Zip Marketers c. Geodemographic Database System d. Neighborhood Segmentation Database Ans: B KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Types of sites, accessibility, legal considerations, and economic factors are all issues to address when choosing ______. a. a potential product b. a potential advertising campaign c. a potential management team d. a potential business location Ans: D KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Road patterns and condition, obstructive barriers, site visibility, traffic flow, and parking convenience are all questions to address when looking at ______ in site selection. a. legal considerations b. economic factors

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. type of site d. accessibility Ans: D KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. William has determined that he needs to expand parking at his bookstore, so he decides to purchase the empty lot across the street. This constitutes which site location consideration? a. economic factors b. type of site c. legal considerations d. accessibility Ans: D KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 22. Robert is opening a new bar and grill, and he is currently negotiating with the city’s liquor board to obtain a liquor license before he can open. This constitutes which site location consideration? a. economic factors b. type of site c. legal considerations d. accessibility Ans: C KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 23. Occupancy costs, the cost of amenities, and all one-time costs and leasehold improvements are all questions to address when looking at ______ in site selection. a. legal considerations b. economic factors c. type of site d. accessibility

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. The number of ______ and ______ passing a site strongly affects its potential retail sales. a. cars; people b. tour busses; people c. cars; tour busses d. policemen; people Ans: A KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Auto dealerships are often located close together because ______. a. they can share lot expenses b. they can share salespeople c. it is easier for customers to comparison shop d. they can keep close watch on the competition Ans: C KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. ______ involves restoring old buildings or replacing them with new offices, retail shops, or housing. a. Gentrification b. Site selection c. Diversification d. Displacement Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 27. Service and retail businesses have three basic choices for types of locations; central business districts, shopping centers, and ______. a. main street areas b. manufacturing areas c. suburban areas d. stand-alone locations Ans: D KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. The central business district is usually the ______ section of town. a. newest b. most expensive c. oldest d. safest Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Denver’s Larimer Square and Chicago’s Water Tower Place are examples of ______. a. the gentrification process b. urban blight c. areas with high crime rates d. areas with old, dilapidated buildings Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Which of the following locations should a small business owner choose when comparing locations for an upscale gift shop? a. the central business district b. the central manufacturing area c. a small shopping center in an exclusive neighborhood d. the one large shopping mall in a large town

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Disadvantages such as little parking availability, traffic congestion, older buildings, and neighborhood disparity are found in which location type? a. central business districts b. shopping centers c. stand-alone locations d. suburban areas Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. A large retail store that attracts people to shop at malls is known as ______. a. Walmart b. an anchor store c. the main attraction d. the primary store Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. Advantages such as heavy traffic due to the variety of products available, cost sharing, ample parking, and a lower crime rate are found in which location type? a. central business districts b. shopping centers c. stand-alone locations d. suburban areas Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. The inflexibility of store hours is a major disadvantage of which location type?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. central business districts b. shopping centers c. stand-alone locations d. suburban areas Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Little competition, more parking, and less rent are advantages of which of the following location sites? a. central business districts b. shopping centers c. stand-alone locations d. suburban areas Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. According to the text, if the business is a health club, convenience store, or a wholesale club, which may be the best location site choice? a. central business districts b. shopping centers c. stand-alone locations d. suburban areas Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. With service businesses that visit the customer such as plumbers, carpet cleaners, and landscapers, location is ______. a. not as critical b. just as critical c. more critical d. unimportant Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. A type of business location that exists to assist startups by providing lower than market rent and shared services and equipment is called a/an ______. a. incubator b. henhouse c. hothouse d. percolator Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. The major advantage of an incubator is ______. a. lower than market rent b. professional assistance c. networking d. financing Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. For destination-oriented products such as health clubs, convenience stores, or wholesale clubs, what location type would work best? a. incubator b. stand-alone location c. mall center d. central business district Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. The SLU Data Processing Center is located on university property, where it leases the location space for lower-than-market rent. The university also provides office supplies and equipment at a discounted rate. SLU is most likely situated in what type of business location? a. incubator

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. stand-alone location c. shopping center d. central business district Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 42. Incubators can easily put a new businessperson in contact with other local businesses. This is known as ______. a. professional assistance b. factoring c. networking d. outsourcing Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. How your location is laid out and designed is important because it affects the ______ and ______ of your business. a. profit; loss b. profit; expenses c. image; productivity d. activity; customer base Ans: C KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. Which of the following layouts encourages customers to browse? a. free-flow layout b. grid layout c. loop layout d. free-style layout Ans: A KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 45. Supermarkets and drugstores tend to use which of the following layouts because it suits customers who wish to shop the entire store by moving up and down alternate aisles? a. free-flow layout b. grid layout c. loop layout d. process layout Ans: B KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. A type of retail layout with a predominant aisle running through the store that quickly leads customers to their desired departments is known as ______. a. free-flow layout b. grid layout c. loop layout d. process layout Ans: C KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. Carla owns an upscale hat shop, and she recently moved her shop to the city’s central business district. In contemplating the layout of the shop’s interior, Carla has determined that she would like a layout that encourages browsing. Which layout style should she choose? a. process layout b. loop layout c. free-flow layout d. grid layout Ans: C KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 48. A way to arrange a manufacturing business by placing all comparable equipment together in the same area is a ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. process layout b. product layout c. fixed layout d. mobile layout Ans: A KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. Auto assembly lines and textile mills where raw materials enter one end of the line and finished products exit the other are examples of which layout? a. process layout b. product layout c. fixed layout d. mobile layout Ans: B KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. A disadvantage of the ______ layout is that when equipment is grouped together, increased handling is needed to move the product from one station to another when more than one task is performed. a. service b. fixed c. product d. process Ans: D KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. Barbara works at a business location where she has a great deal of independence, enjoys very low overhead expenses, and has no commute time. Barbara’s business is located at ______. a. a shopping center b. a central business district c. a home office d. an anchor store Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 52. A long-term agreement to rent a building, equipment, or other assets is known as ______. a. a lease b. a rental contract c. a legally liable contract d. a business contract Ans: A KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 53. The biggest advantage of leasing is the ______ that is made available for other purposes. a. time b. cash c. expenses d. effort and energy Ans: B KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. If you sign a triple net lease, you are agreeing to pay a base monthly rent plus ______. a. three times fair market value b. an extra amount every three months c. real estate taxes, insurance, and operating expenses of the building d. nothing else Ans: C KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 55. Changes that make a property more valuable, such as painting, adding shelves, or new lighting are known as ______. a. leasehold improvements b. capital improvements c. asset improvements d. deductible expenses Ans: A KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 56. Chuck pays a lease for his centrally located software shop. He pays the same amount to lease the building each month, but his landlord covers the operating expenses such as taxes, insurance, and repairs. Chuck’s lease can best be described as a ______. a. gross lease b. net lease c. net-net lease d. triple-net lease Ans: A KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 57. A lease in which the tenant pays a base monthly rent plus real estate taxes and insurance on the building is referred to as a ______. a. gross lease b. net lease c. net-net lease d. triple-net lease Ans: C KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 58. A lease that varies according to the amount of inflation in the economy is referred to as a/an ______. a. percentage lease b. escalation lease c. gross lease d. triple-net lease Ans: B KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking NARRBEGIN: 12-1 Scenario 12-1. Molli is beginning her new manufacturing business where she is producing computer desks. She has picked a site for her new business and is now concerned with the layout in order to provide a smooth flow for the work. Her competitive advantage has been identified as the quality of the desks that she will produce. Flexibility to change the design and low costs are also considerations in the profitability of the business.

NAREEND 59. In Scenario 12-1, Molli realizes that the market for furniture is constantly changing.

One of the features she wants to ensure in her layout is flexibility so that the product can be changed to meet consumer demand. Which type of layout would enable her to do this? a. process layout b. loop layout c. grid layout d. product layout Ans: A KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-1 60. In Scenario 12-1, based on the above criteria, which of the following would be the best choice for the layout of Molli’s manufacturing business? a. process layout b. loop layout c. grid layout d. product layout Ans: A

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-1 61. In Scenario 12-1, as with any small business owner, Molli needs to keep costs as low as possible. Which layout would enable her to decrease material handling costs? a. process layout b. loop layout c. grid layout d. product layout Ans: D KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-1 62. In Scenario 12-1, quality is a major advantage that Molli would like to work into her manufacturing design. The likelihood of building the desks with dents or scratches increases each time they are moved from one location to another. Which type of layout would minimize the number of times the desk pieces would be moved? a. process layout b. loop layout c. fixed layout d. product layout Ans: C KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-1 63. In Scenario 12-1, which type of layout is usually more expensive due to the specialized equipment that is needed, which also increases the likelihood of the whole line shutting down if there is a breakdown anywhere along the line? a. process layout b. loop layout c. fixed layout d. product layout Ans: D KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-1 NARRBEGIN: 12-2 Scenario 12-2. Kathy’s Craft Cubby is beginning the process of deciding on a location.

The craft store will sell small handmade wooden crafts by many local artisans. Kathy is excited about managing this new enterprise since she will be the primary supplier of the crafts that will be sold. She realizes that location is a very important consideration. Her crafts will range in the medium to expensive price range since they are high quality and unique. Kathy’s claim is that there will never be a duplicate made of any of her creations.

NARREND 64. In Scenario 12-2, Kathy is considering a ______ as a location. However, here parking would be difficult to find and very expensive along with a possible high crime rate. a. central business district b. shopping center c. stand-alone location d. franchise Ans: A KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-2 65. In Scenario 12-2, Kathy realizes much of her store traffic may need to come from anchor stores and that a visit to her shop may be secondary on her customers’ lists.

This would be which of the following location types? a. central business district b. shopping center c. stand-alone location d. franchise Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 66. In Scenario 12-2, Kathy would like to open her store during hours that are convenient for her. Owing to her personal life, having the store open in the evenings would be difficult. This would make which of the following locations difficult to use? a. central business district b. shopping center c. stand-alone location d. franchise Ans: B KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR 12-2 67. In Scenario 12-2, Kathy feels that her competitive advantage will be very clear to her customers in a short time period. Her unique merchandise will soon draw in a loyal customer base. If this is true, which of the following locations may work for her? a. central business district b. shopping center c. stand-alone location d. franchise Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-2 68. In Scenario 12-2, based upon the above information, which location type would work best for Kathy’s business? a. central business district b. shopping center c. stand-alone location d. franchise Ans: C KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 12-2

Hatten, Small Business Management 7e SAGE Publishing, 2020

True/False 1. The choice for distribution channel becomes less significant when entering international markets.

Ans: F KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Intermediaries include agents, brokers, wholesalers, and retailers.

Ans: T KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. An intermediary who sells products to the ultimate consumer is referred to as a broker.

Ans: F KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Adding intermediaries to the distribution channel usually increases the cost to the consumer.

Ans: F KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. It is possible to eliminate the middleman intermediaries and the functions they perform.

Ans: F KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Selecting a location for a business is one of the most important decisions made by a small business owner.

Ans: T KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. People will go out of their way to find a business.

Ans: F KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Neither brokers nor agents take title, or ownership, to the goods sold.

Ans: T KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Cities that provide stable housing markets and low crime rates also see the strongest economic growth.

Ans: T KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The economic condition of a city, state, or region can be much different than the national economic condition.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Since the SCI is difficult to calculate, business consultants must be hired to figure the index and interpret the data.

Ans: F KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Neighborhoods tend to have residents that are very different.

Ans: F KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. The volume of automobile and foot traffic, the speed of vehicles, and the presence of turning lanes and parking areas are important factors to consider when choosing a location for a business.

Ans: T KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. The type of traffic passing a business is just as important as the volume of traffic that is passing the business.

Ans: T KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 15. A disadvantage of locating in a central business district is that it is expensive and hard to obtain parking.

Ans: T KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. A disadvantage of locating a business in a shopping center is the inflexibility of the hours that the business must be open.

Ans: T KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Anchor stores are small retail shops located within large department stores that draw people to the store.

Ans: F KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. For service businesses that visit the customer (like plumbers and landscapers), location becomes even more critical than for other service businesses.

Ans: F KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. If a small business owner chooses a stand-alone location, the competitive advantage of the business must be very clear.

Ans: T KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 20. An incubator offers support services and equipment, professional assistance, and networking to new small businesses.

Ans: T KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Before a site is selected, a business owner must first lay out the interior of the business.

Ans: F KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. If a service business is visited by the customer, location is not critical. The customer will find the business.

Ans: F KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.4: Location Types Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The Americans with Disabilities Act (ADA) of 1990 requires businesses to be accessible to disabled customers and employees.

Ans: T KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Small manufacturers use the process layout primarily due to its flexibility.

Ans: T KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. In a process layout, the product stays in one spot, and equipment, materials, and labor are brought to the product.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: F KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. A restaurant that makes items like bagels, pizzas, or cookies could use a fixed layout design very efficiently.

Ans: F KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 27. Aircraft and shipbuilders use the process layout in order to manufacture their product.

Ans: F KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. A product layout is inflexible because it is costly and difficult to change the product that is being made.

Ans: T KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. A disadvantage of a lease agreement is that it may prevent a business owners from altering a building to fit the business’s needs.

Ans: T KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. The biggest advantage of leasing is the property tax that the lessee does not have to pay.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: F KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. A lease in which the tenant pays a base monthly rent plus some or all real estate taxes of the building is called a gross lease.

Ans: F KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Lease payments are deductible business expenses, while if a building is owned, only depreciation is deductible for tax purposes.

Ans: T KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. The recognition clause in a lease allows landlords to adjust rent according to the consumer price index or some other economic scale.

Ans: F KEY: Learning Objective: 12.6: Present the circumstances under which leasing, buying, or building is an appropriate choice.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 12.6: Lease, Buy, Or Build?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Describe the three primary types of distribution channels.

Ans: direct channel indirect channel dual distribution KEY: Learning Objective: 12.1: Describe small business distribution and explain how “efficiencies” affect channels of distribution.

REF: Cognitive Domain: Comprehension

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 12.1: Small Business Distribution Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe three critical factors when deciding upon the location for a new business.

Ans: price and availability of land and water availability of a qualified labor pool accessibility to customers and suppliers closeness of competition taxes and regulations transportation and parking adequacy KEY: Learning Objective: 12.2: Explain how the location of your business can provide a competitive advantage.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.2: Location For The Long Run Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. List and describe at least three broad categories of site questions when locating a business.

Ans: type of site accessibility legal considerations economic factors KEY: Learning Objective: 12.3: Discuss the central issues in choosing a particular site within a city.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.3: Site Selection Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Compare and contrast the three basic types of locations for businesses.

Ans: central business district the original downtown area older part of town access to public transportation parking is hard to find and expensive shopping centers presence of anchor stores parking availability convenience wider selections entertainment inflexibility of store hours stand-alone locations clear competitive advantage

Hatten, Small Business Management 7e SAGE Publishing, 2020 unique merchandise must have large selections and low prices must provide exceptional service freedom to set own hours more parking lower rent KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Describe incubators and explain the benefits of an incubator for a small business owner.

Ans: offer entrepreneurs rent below market price, along with services and equipment that they would have a difficult time financing on their own encourages entrepreneurship, which then contributes to economic development benefits support services professional assistance networking financing KEY: Learning Objective: 12.4: Compare the three basic types of locations.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.4: Location Types Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Compare and contrast a grid layout and a loop layout.

Ans: Grid layout used by retail stores places counters and fixtures at right angles in long rows displays a large amount of merchandise suits customers who wish to shop the whole store Loop layout used by retail stores predominant aisle running through the store and back to the checkout counter customers are efficiently led through the store useful for businesses that sell a wide variety of merchandise because customers can easily go from one department to the next KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 7. Compare and contrast the process layout and the product layout.

Ans: Process layout used by manufacturing all similar equipment and workers are grouped together allows for greater flexibility product can be changed quickly minimizes the amount of tools and equipment needed Product layout used by manufacturing arrange workers and equipment in a particular step sequence works best when producing many standardized products auto assembly line and textile mills use this layout material handling costs can be decreased KEY: Learning Objective: 12.5: Explain the types of layout you can choose.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 12.5: Layout and Design Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 13: SMALL BUSINESS MARKETING: PRICE AND PROMOTION Multiple Choice 1. ______ represents what the consumer considers a product to be worth. a. Price b. Value c. Supply d. Demand Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Which of the following is one of the most flexible components of the marketing mix? a. product b. promotion c. place d. price Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The value of a product depends on the benefits received compared to the ______. a. quality of the product b. quantity purchased of the product c. monetary cost d. raw materials used to produce the product Ans: C KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Establishing the ______ for goods and services at appropriate levels of production is a critical component of the marketing mix.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. right advertising angle b. correct sales force c. best management team d. right price Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. People purchase premium products despite the higher costs because ______. a. they perceive greater benefits and increased quality b. they perceive increased quality and fewer benefits c. they perceive greater benefits with a decrease in quality d. they perceive higher status and higher quality Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Consumers typically do not want the cheapest product available, they want the ______. a. best product for the highest price b. most reasonable product at the highest price c. most reasonable product at the lowest price d. best product for the most reasonable price Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The “right” price, as determined by the small business owner, is a range between what the market will bear and what the product ______. a. value is perceived to be b. costs c. is worth d. image is perceived to be Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. The number of competitors and their proximity influences what a small business owner can charge because the competition represents ______. a. substitute choices to the customer b. a better product for the consumer c. better quality as perceived by the consumer d. less expensive products Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Small business owners can compete with large chains like Walmart and Amazon by focusing on ______. a. lower prices b. wider selection c. flexibility d. convenience Ans: C KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The success of Walmart is directly related to its ______. a. prices b. advertising c. high shrinkage d. economy of scale advantages Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 11. The number of units of a product people would be willing to purchase at differing price levels is known as ______. a. the demand curve b. the supply curve c. the product curve d. the price curve Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Products for which customers are price sensitive are said to be ______. a. price elastic b. price inelastic c. price volatile d. price subjective Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. The effect that price changes have on sales is known as ______. a. the demand curve b. the supply curve c. the price elasticity d. the price curve Ans: C KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a Product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Products for which customers are not sensitive to price changes are said to be ______. a. price elastic b. price inelastic

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. price volatile d. price subjective Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Restaurants, personal computers, and airline travel all tend to have a demand that is ______. a. price elastic b. price inelastic c. price volatile d. price subjective Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. If the price of the product falls by five percent and the volume of sales increases by eight percent, the demand for the product is ______. a. price elastic b. price inelastic c. price volatile d. price subjective Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 17. Health care, food products, and a Ferrari tend to have a demand which is ______. a. price elastic b. price inelastic c. price volatile d. price subjective Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. If the price of a product increases by 10 percent and sales volume falls by 1 percent, demand for the product is ______. a. price elastic b. price inelastic c. price volatile d. price subjective Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 19. While shopping at the supermarket, Selina was dismayed to find that the price of orange juice was now 50% more than what she was used to paying. As a result, Selina purchased grapefruit juice, which was closer to what she usually pays. Based on this example, orange juice is ______. a. a necessity b. a luxury good c. inelastic d. elastic Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 20. Total costs fall into two general categories: ______. a. tangible costs and intangible costs b. fixed costs and variable costs c. production costs and service costs d. singular costs and dual costs Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 21. Costs that do not change with the number of sales made are called ______. a. fixed costs b. variable costs c. the breakeven point d. asset costs Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Costs like rent, property taxes, and utilities are generally ______. a. fixed costs b. variable costs c. the breakeven point d. asset costs Ans: A KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Costs that change in direct proportion to sales are known as ______. a. fixed costs b. variable costs c. the breakeven point d. asset costs Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Sales commissions, raw materials, and labor costs are generally ______. a. fixed costs b. variable costs c. a breakeven point d. a demand curve

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The point at which total cost equals total revenue and the business is neither making nor losing money is known as ______. a. the profit area b. the loss area c. the breakeven point d. the profit point Ans: C KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. How many units of a product must be sold in order for the business to break even if total fixed costs are $500, the product is selling for $14, and the average variable cost is $8? a. 100.3 units b. 84.3 units c. 63.3 units d. 38.3 units Ans: B KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 27. How many units of a product would have to be sold if total fixed costs are $300, desired profit for the product is $2,000, the price at which the product is selling is $15, and the average variable cost is $8? a. 329 units b. 288 units c. 243 units d. 153 units Ans: A

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 28. What would be the breakeven point in dollars if total fixed costs were $300, the average variable costs were $9, and the price per unit was $18? a. $16 b. $33 c. $400 d. $600 Ans: D KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 29. What the competition charges and what consumers are willing to pay sets the price ______ while costs of producing the product establish the price ______. a. ceiling; floor b. floor; ceiling c. demand curve; supply curve d. fixed costs; variable costs Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.3: Price-Setting Techniques Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Which of the following is not a consideration in establishing the “right” price for a product or service? a. competition b. consumer demand c. your gut d. costs Ans: C KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.3: Price-Setting Techniques

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. To accomplish the goals of increasing sales, increasing store traffic, and discouraging competition, which of the following is an appropriate strategy? a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Setting the price of a new product below what is expected in order to gain faster market share is known as ______. a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. To accomplish the goals of maximizing short- or long-run profits and to quickly recover development costs, which of the following is an appropriate strategy? a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 34. Setting the price of a new product higher than expected in order to recover development costs is known as ______. a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Home electronics such as personal computers, cellular phones, and VCRs are often introduced using which of the following strategies? a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. With an inelastic product, since there are not usually many substitutes, a/an ______ strategy can be used, setting the prices higher. a. skimming b. penetration c. odd d. reference Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. At Sally’s Sun Boutique, items are always priced at $4.98 or $8.99 rather than $5.00 or $9.00. This is an example of what type of pricing tactic? a. price lining b. prestige pricing

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. reference pricing d. odd pricing Ans: D KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 38. ______ is common in retail goods for which consumers have an idea of what the price “should be” and have a “usual” price in mind for that item. a. Price lining b. Prestige pricing c. Reference pricing d. Odd pricing Ans: C KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. At Marco’s Men’s Store, all ties are priced at one of three different price points: $16.95, $24.95, and $33.95. This is an example of what type of pricing tactic? a. price lining b. prestige pricing c. reference pricing d. odd pricing Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 40. When the goals of a business are stabilizing market prices, establishing market position, building an image, and developing a reputation, which of the following strategies should be used? a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Setting the price of a product in a way that will alter its perception to customers is known as ______. a. penetration pricing b. price skimming c. psychological pricing d. price lining Ans: C KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. People often equate quality with price. This belief has led to which of the following pricing strategies? a. prestige pricing b. odd pricing c. reference pricing d. price lining Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Grouping product prices into ranges such as low-, medium-, and high-priced items is known as which of the following? a. prestige pricing b. odd pricing c. reference pricing d. price lining Ans: D KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. The amount that is added to the overall cost of a product when setting the final selling price to ensure a profit is known as which of the following? a. markup b. the specified percentage c. net income d. gross margin Ans: A KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. If a business knows how many units will be sold and what the fixed costs and the variable costs will be, ______ allows the selling price to be set to produce a given rate of return. a. cost-plus pricing b. target-return pricing c. penetration pricing d. reference pricing Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. Overpricing a product or service to make consumers curious is an example of what type of pricing tactic? a. target-return pricing b. creativity in pricing c. cost-plus pricing d. reference pricing Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 47. The two basic categories of credit include ______. a. business credit and industry credit b. industry credit and personal credit c. consumer credit and business credit d. trade credit and consumer credit Ans: D KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. Credit extended to customers for the purchase of products is known as which of the following? a. trade credit b. consumer credit c. insufficient credit d. extensive credit Ans: B KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. Credit extended from one business to another business is known as which of the following? a. trade credit b. consumer credit c. courtesy credit d. extensive credit Ans: A KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. The type of credit where the consumer takes possession of the goods and the business then bills the consumer is known as a/an ______. a. open charge account b. installment account c. line of credit d. debit card Ans: A KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 51. The type of credit frequently offered to customers who are purchasing big-ticket items like cars and boats where the customer makes a down payment and then monthly payments is known as a/an ______. a. open charge account b. installment account c. line of credit d. debit card Ans: B KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. The type of credit that operates like a revolving credit account where customers can purchase goods up to a certain dollar limit without a new credit check for each purchase is known as a/an ______. a. open charge account b. installment account c. line of credit d. debit card Ans: C KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 53. Trade credit can take the form of all but which of the following? a. consignment goods b. seasonal dating c. extended payment periods d. reference payment periods Ans: D KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 54. Small businesses can easily fall into the mindset of being concerned about ______ now, and working on improving ______ later. a. expenses; income b. sales; profit margins c. sales; expenses d. profit margins; sales Ans: B KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 55. Which of the following is a good example of outdoor media? a. newspapers b. radio c. television d. billboards Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. The ______ of the target market should affect the choice of advertising media that are used. a. income b. habits c. age d. gender Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. ______ is a way to bring attention to a product or business by publishing or broadcasting a message to the public through various media. a. Word-of-mouth b. Personal selling

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. Advertising d. Negotiating Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 58. Advantages of ______ advertising are that it is flexible, timely, covers local markets well, is believable, is relatively inexpensive, and can use inserts and coupons. a. magazine b. newspaper c. yellow pages d. Internet Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 59. Advantages of ______ advertising are that it can be targeted to a specific audience, it comes at a relatively low cost, and there are short lead times so ads can be developed quickly. a. radio b. magazine c. television d. direct mail Ans: A KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 60. ______ advertisements discuss the existence of the business, the competitive advantage, or the product features and benefits. a. Informational b. Persuasion

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. Reminder d. Perception changing Ans: A KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 61. ______ advertisements get customers to take immediate action, such as buying the product. a. Informational b. Persuasion c. Reminder d. Perception changing Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 62. Creating goodwill rather than making immediate sales is known as ______. a. foolish advertising b. goodwill advertising c. institutional advertising d. reverse psychology advertising Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 63. Advantages of ______ advertising are that it results in high, repeated exposure at low cost and with limited competition. a. Internet b. magazine c. outdoor d. direct mail

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 64. Abe’s Advertising Company is currently working on a TV ad campaign which includes a classic song to position the product. Advertisers hope that the music will bring about a sense of nostalgia among potential customers. Which advertising strategy is Abe’s using? a. testimonial b. humor c. comparative message d. slice-of-life message Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 65. ______ are a common advertising strategy that uses an authority to present the message. a. Slice-of-life messages b. Fantasy messages c. Comparative messages d. Testimonial messages Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 66. Using coded or dated coupons can let the researcher compare different media. This is known as ______. a. split ads b. in-store opinions c. telephone surveys

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. response tracking Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 67. Which of the following is not a technique for measuring advertising effectiveness? a. response tracking b. split ads c. telephone surveys d. testimonials Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 68. Which of the following is a common problem among self-produced small business advertising? a. cost of the ad b. content of the ad c. trying to cram too much into the ad d. quality of the message Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 69. ______ can help by conducting preliminary studies, developing an advertising plan, creating advertisements, selecting the appropriate media, evaluating the effectiveness of the advertising, and conducting ad follow-up. a. Advertising agencies b. Media agencies c. Art and graphic design services d. Broadcast agencies

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 70. Winston, a television satellite company manager, decides to drop a brief questionnaire in the monthly bill sent out to all satellite customers, in an effort to find out if they are satisfied with the level of service from the company and to learn how they found out about the service. This is an example of which tool for measuring advertising effectiveness? a. response tracking b. split ads c. in-store opinions d. statement questionnaires Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 71. ______ can help coordinate media mixes in order to reach markets. a. Advertising agencies b. Media agencies c. Art and graphic design services d. Broadcast agencies Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 72. The biggest drawback to personal selling is ______. a. time b. cost c. poor customer service d. lack of knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 73. ______ are a good place to get ads produced since their services usually cost less than advertising agencies. a. Radio and television studios, newspaper offices, and magazine offices b. Media agencies c. Art and graphic design agencies d. Custom ad agencies Ans: A KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 74. The steps in the personal-selling process, in order, are which of the following? a. approach, pre-approach, questioning, demonstration, handling objections, closing the deal, suggestion selling, and follow-up b. pre-approach, approach, questioning, demonstration, handling objections, closing the deal, suggestion selling, and follow-up c. demonstration, pre-approach, approach, questioning, handling objections, closing the deal, suggestion selling, and follow-up d. questioning, demonstration, approach, pre-approach, handling objections, closing the deal, suggestion selling, and follow-up Ans: B KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 75. The first step in the personal-selling process is ______. a. questioning b. approach c. pre-approach

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. demonstration Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 76. ______ is an aspect of PR consisting of any message about an organization that is communicated through the mass media that does not require payment. a. Public relations b. Advertising c. Personal selling d. Promotion Ans: A KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Public Relations Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 77. Which of the following is not a public relations activity? a. lobbying b. event sponsorship c. an employee picnic d. press releases Ans: C KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Public Relations Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 78. ______ is any activity that stimulates sales and is not strictly advertising or personal selling. a. Promotional mix b. Sales promotion c. Advertising d. Personal selling Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Sales Promotions Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 79. When used with advertising and personal selling, ______ can give a short-term boost to sales. a. promotional mix b. media reporting c. sales specials d. sales promotions Ans: D KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Sales Promotions Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 13-1 Scenario 13-1. Merle is considering purchasing a new lawn mower. He wants a mower that is self-propelled, has a higher horsepower rating, and a high level of quality instilled in the workmanship. Merle begins his search by looking in the yellow pages of the local phone book. Several small lawn mower dealers are listed along with several big-name wholesalers such as Walmart. Merle is not sure where to begin.

NARREND 80. In Scenario 13-1, if Merle knew about the components of the marketing mix, he would realize that ______ is one of the most flexible components. a. the product b. the promotion c. the place d. the price Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 81. In Scenario 13-1, Merle, being a normal consumer of lawn mowers, will look for which of the following? a. the highest quality lawn mower with the highest price b. the least expensive lawn mower available with the lowest level of quality c. the lowest level of quality lawn mower with the highest price d. the highest quality lawn mower with the most reasonable price Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 13-1 82. In Scenario 13-1, the “right” price that Merle will pay will be in a range between what the market will bear and what the product ______. a. is selling for b. costs to make c. is worth d. name brand is perceived to be Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 13-1 83. In Scenario 13-1, Merle may purchase an extremely high quality, high price lawn mower such as a Toro despite its high price because he ______. a. may perceive increased quality and decreased benefits b. may perceive increased benefits with decreased quality c. may perceive increased personal status and increased quality d. may perceive increased benefits and increased quality Ans: D KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-1

Hatten, Small Business Management 7e SAGE Publishing, 2020 84. In Scenario 13-1, if Merle saw that the price of lawn mowers had risen by 10 percent, but the overall sales volume of lawn mowers at local dealerships had fallen by only 1 percent, Merle could say that the demand for lawn mowers is ______. a. price volatile b. price inelastic c. price elastic d. price subjective Ans: B KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking NAR: 13-1 NARRBEGIN: 13-2 Scenario 13-2. Benjamin has been running his kennel service for one year. So far, business has been good and all expenses have been met each month, leaving a small profit. He has a large building capable of handling a total of 35 dogs. Each pen has fresh water supplied through pipes, an automated feeder, and a heating/cooling unit that keeps each pen at a comfortable 68 degrees. Benjamin rents each pen at a price of $30 per day. His total fixed costs each month are $500. Average variable costs are $12.

NARREND 85. In Scenario 13-2, based on the numbers above, what is Benjamin’s breakeven point? a. 26 pen rentals each month b. 28 pen rentals each month c. 30 pen rentals each month d. 32 pen rentals each month Ans: B KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-2 86. In Scenario 13-2, if Benjamin’s fixed costs were to rise to $600 per month while all other variables remained the same, what would Benjamin’s new breakeven point be? a. 30 pen rentals each month b. 32 pen rentals each month c. 34 pen rentals each month d. 36 pen rentals each month

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-2 87. In Scenario 13-2, if Benjamin would like a monthly profit of $2,000, using the original numbers, calculate his target return in pen rentals. a. 136 pen rentals each month b. 139 pen rentals each month c. 142 pen rentals each month d. 145 pen rentals each month Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Comprehension Answer Location: Internal-Oriented Pricing Strategies Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-2 88. In Scenario 13-2, if Benjamin’s fixed costs were to rise to $600 per month while all other variables remained the same, what would Benjamin’s target return in pen rentals be, using a monthly profit target of $2,000? a. 140 pen rentals each month b. 145 pen rentals each month c. 150 pen rentals each month d. 155 pen rentals each month Ans: B KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Comprehension Answer Location: Internal-Oriented Pricing Strategies Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-2 89. In Scenario 13-2, Benjamin would like to determine his breakeven point in dollars instead of pen rentals. When he calculated this using the original data, his breakeven point would be ______. a. $834 b. $956 c. $1,012

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. $1,248 Ans: A KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 13-2

True/False 1. Establishing the right price for a good or service at an appropriate level of production is a critical component of the marketing mix.

Ans: T KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Product is one of the most flexible components of the marketing mix.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. When considering a product, consumers typically look for the cheapest product available.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.1: The Economics of Pricing Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. The closer the proximity of the competition, the more influence the competition will have on the price of the small business owner’s product.

Ans: T KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. To survive in an industry dominated by giants, a small business should compete by offering lower prices.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Restaurants and personal computers tend to be price inelastic.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Customer Demand Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The right price is a range of possible prices.

Ans: T KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Competition Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Sales commissions, materials, and labor tend to be fixed costs.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Expenses like rent, property taxes, and utilities are variable costs.

Ans: F KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The breakeven point is that point where total revenues are greater than total costs.

Ans: F KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Necessary and luxury goods both tend to be price inelastic.

Ans: T KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Knowledge Answer Location: Costs Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. On a breakeven point graph, the fixed-costs line runs vertically.

Ans: F KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. The usefulness of breakeven analysis depends on the quality of data used in the calculations.

Ans: T KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Setting prices higher than expected in order to recover developmental costs is known as penetration pricing.

Ans: F KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Home electronics are often introduced using a skimming pricing strategy.

Ans: T KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Jewelry, perfume, beer, and law firm services all use prestige pricing as a pricing strategy.

Ans: T KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Psychological pricing tactics include prestige pricing, odd pricing, and reference pricing.

Ans: T KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Another name for markup pricing is target-return pricing.

Ans: F KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Most businesses base markup on selling price.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Knowledge Answer Location: Customer-Oriented Pricing Strategies Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. The trend today is toward consumers carrying more cash and using credit and debit cards less frequently.

Ans: F KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Open charge accounts can hinder the cash flow of a business and eventually cause the business to fail.

Ans: T KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Many new businesses can take advantage of trade credit even when no other form of financing is available.

Ans: T KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The use of credit and debit cards is decreasing while the usage of cash and checks is increasing.

Ans: F KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Customers, not businesses, have to pay a percentage of each sale to the credit card company handling the sale.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. The longer a credit account goes uncollected, the less likely the small business owner will receive the money owed to him/her.

Ans: T KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Knowledge Answer Location: Extending Credit to Your Customers Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Spending large amounts of money automatically results in better advertising.

Ans: F KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Limitations of television advertising are that it comes at a high cost, there is short exposure time, and there is a high volume of competitive ads that increase clutter and decrease impact.

Ans: T KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. A limitation of magazine advertising is that there is a great deal of uncertainty of the number and types of people reached.

Ans: F KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 29. To measure the effectiveness of advertising, companies may choose to code two different ads to see which produces a greater response, a technique that is referred to as split advertising.

Ans: T KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Advertising Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Personal selling involves a personal presentation by the salesperson for the purpose of making sales and building relationships with customers.

Ans: T KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Time is the biggest drawback to personal selling.

Ans: F KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Public relations involve promotional activities designed to build and sustain goodwill between a business and its customers, employees, suppliers, investors, government agencies, and the general public.

Ans: T KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Public Relations Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 33. Publicity consists of any messages concerning a company that are communicated through mass media and are paid for by the company.

Ans: F KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Public Relations Difficulty Level: Easy41 TOP: AACSB Standard: Analytical thinking 34. The last step in the personal selling process is closing the deal.

Ans: F KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Knowledge Answer Location: Personal Selling Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Explain the three primary considerations in setting the price for a product.

Ans: price charged by competitors amount of customer demand for the product costs incurred in producing, purchasing, and selling the product KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.3: Price-Setting Techniques Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe at least three areas that are good places to start when thinking about what differentiates a product from the competition.

Ans: price added value convenience trust community relations KEY: Learning Objective: 13.1: Identify the three main considerations in setting a price for a product.

REF: Cognitive Domain: Comprehension Answer Location: Competition

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Explain the importance of the breakeven point for small business and the difference between fixed and variable costs.

Ans: breakeven point point at which the total cost equals total revenue, and the business neither makes nor loses money calculating the breakeven point allows the price to be set above costs, thus obtaining a profit fixed costs costs that do not change with the number of sales variable costs costs that do change in direct proportion to sales KEY: Learning Objective: 13.2: Explain what breakeven analysis is and why it is important for pricing in a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.2: Breakeven Analysis Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Compare and contrast customer-oriented pricing strategies and internal-oriented pricing strategies.

Ans: customer oriented focus on target markets focus on factors that affect demand skimming, penetration pricing, and psychological pricing are strategies Internal oriented focus on the financial needs and costs of the business cost plus and target return are pricing strategies KEY: Learning Objective: 13.3: Present examples of customer-oriented and internaloriented pricing.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.3: Price-Setting Techniques Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Explain how and why small businesses extend credit.

Ans: credit is extended in order to increase sales that would not occur without credit also used to increase the volume and frequency of sales credit is extended through open charge accounts, installment accounts, lines of credit, and credit card acceptance KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Comprehension Answer Location: Extending Credit to Your Customers Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 6. Discuss the four major tools that are available when developing a promotional mix.

Ans: advertising personal selling public relations sales promotion KEY: Learning Objective: 13.5: Describe the advertising, personal selling, public relations, and sales-promotion tools that a small business owner uses to compile a promotional mix.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 13.5: Promotion Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Explain the importance of having a collection system for extended credit.

Ans: Sales are not actual sales until the money has been received.

The collection system is what ensures that the credit is actually turned into cash.

Lack of an adequate collection system can seriously hinder cash flow, which can then cause the business to become insolvent.

KEY: Learning Objective: 13.4: Explain factors affecting small businesses getting paid.

REF: Cognitive Domain: Comprehension Answer Location: Extending Credit to Your Customers Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 14: PROFESSIONAL SMALL BUSINESS MANAGEMENT Multiple Choice 1. At work on a typical day, Kathleen, a sales manager, spends a portion of her day talking to customers and suppliers, but she also organizes work activities and leads a team of assistants. She has to ensure that quality standards are being met within the company. This example demonstrates that ______. a. the functions of management are continuous and interrelated b. leadership is the most important function of management c. controlling is the most important function of management d. the functions of management need to be delegated to a large pool of employees Ans: A KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 2. Organizing involves all but which of the following? a. assembling financial resources b. assembling human resources c. assembling materials d. assembling invoices Ans: D KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Leading, defined, is the process of getting the most ______ possible from the available ______. a. work; employees b. output; resources c. profit; resources d. resources; suppliers Ans: B KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Controlling, defined, is comparing what was initially ______ with what was actually ______. a. received; bought b. ordered; received c. planned; accomplished d. accepted; defined Ans: C KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Planning is ______ what to do. a. thinking b. pretending c. organizing d. determining Ans: D KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Management can be described as planning, leading, organizing, and controlling in order to achieve the ______ of the organization. a. needs b. goals c. debts d. financial well-being Ans: B KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 7. Which of the following people were responsible for first articulating the four functions of management in 1916? a. Henry Mintzberg b. Henri Fayol c. Henry Ford d. Frederick Herzberg Ans: B KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Efficiency, defined, is ______. a. making a high profit with low expenses b. using all available resources to produce a high amount of output c. accomplishing goals and tasks while making the most of the resources available d. doing all tasks the right way the first time Ans: C KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. Effectiveness, defined, is achieving which of the following? a. stated goals b. high profit c. low expenses d. growth Ans: A KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Within the ______ role of management, the manager needs to determine the direction of the company. a. entrepreneur b. resource allocator c. monitor d. leader

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 11. One of Brandon’s primary roles on the production line is to continuously determine if quality control standards are being met. This relates to which managerial role? a. entrepreneur b. resource allocator c. monitor d. leader Ans: C KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 12. Within the ______ role, the manager needs to identify fresh new ideas and innovations. a. entrepreneur b. resource allocator c. monitor d. leader Ans: A KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Connie’s consulting business has grown steadily over the course of four years.

However, Connie recently has found that some of the jobs are not being completed on time, and there is more stress due to a greater reliance on partners and employees.

Connie is most likely experiencing which of these? a. owner’s fatigue b. growing pains c. exit strategy issues d. resource maturity Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 14. Signs of growing pains include all but which of the following? a. jobs not delivered on time b. costs that rise out of control c. a feeling that chaos is ruling the business d. inadequate building size Ans: D KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The ______ stage of growth involves the owner running the business alone. a. existence b. survival c. success-disengagement d. resource maturity Ans: A KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The ______ stage of growth involves the owner hiring other people. a. existence b. solo c. survival d. resource maturity Ans: C KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 17. The ______ stage of growth involves the owner adding levels of supervision to lead departments or divisions. a. formal organization b. success-disengagement c. takeoff d. resource maturity Ans: B KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Gina’s Pizza has been in operation for three years, and the business has recently expanded to include multiple locations with a head manager at each location. Gina’s Pizza is most likely in which business growth stage? a. survival b. success c. takeoff d. resource maturity Ans: C KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 19. During the ______ stage of business growth, the greatest concerns are to consolidate and control the finances and to professionalize the organization. a. survival b. success c. takeoff d. resource maturity Ans: D KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. The best stage of growth is ______. a. existence b. success-disengagement

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. takeoff d. no single stage is better than the other stages Ans: D KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. According to an NFIB study, small business owners cited what as the most important problem that they face? a. energy prices b. cost of health insurance c. governmental paperwork d. locating qualified employees Ans: B KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Wendy has recently been approached by a Rita to sell her art gallery. Rita has been in the art business for over twenty years, but has never owned her own gallery. She tells Wendy that this has been one of her dreams since she was young. If Wendy sells the gallery to Rita, which exit option will she adopt? a. take the company public b. sell to a strategic buyer c. sell to a financial buyer d. sell to a key employee or group of employees Ans: C KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 23. Bob Boyd is developing an exit strategy for his sporting goods business, since he plans to retire within the next three years. Bob knows that one of the company’s greatest strengths is that there is a core group of motivated employees who have been with the company for years. Based on this information, which exit strategy would be the best option for Bob? a. sell to a strategic buyer

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. sell to a key employee or group of employees c. take the company public d. undertake a planned liquidation Ans: B KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 24. The ______ approach to determining a company’s worth involves looking at what others have paid for comparable businesses. a. asset-based b. income c. market d. liability-based Ans: C KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 25. The ______ approach to determining a company’s worth involves the cost to recreate the operating assets of the business. a. asset-based b. income c. market d. liability-based Ans: A KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. According to Jim Kouzes, the foundation of small business leadership is ______. a. being authoritative b. avoiding stressful situations c. establishing a vision d. being credible Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Sandy owns and manages a retail establishment located near a busy waterfront.

Her employees often describe Sandy as someone who believes in herself and is committed to accomplishing the company’s vision. Sandy’s style of leading can best be described by which leadership attribute? a. written and oral communication ability b. self-confidence and dependability c. adaptability d. creative ability Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 28. The person with a vision that cannot be put into action is a/an ______. a. leader b. follower c. dreamer d. employee Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Vision can be defined as ______ of where the business is headed. a. having a written plan b. having a mental picture c. having no clue d. having goals Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. Written and oral communication, vision, creative ability, and ability to take action are all characteristics of a ______. a. manager b. leader c. small business owner d. president Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Managers must occasionally make difficult choices or changes. The ability to make these choices or changes is known as ______. a. an unsympathetic attitude b. strength c. toughness d. an uncaring attitude toward employees Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. ______ can be defined as the communication process in which two or more people come together to seek mutual agreement about an issue. a. Negotiation b. Delegation c. Vision d. Leadership Ans: A KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Written and oral communication 33. Which of the following is good advice for engaging in the art of negotiation?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. be aggressive b. the goal should be win-lose c. spend more time talking and less time listening d. let the other side make the first offer Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Written and oral communication 34. Delegation, defined, is granting authority and responsibility for a specific task to ______. a. another member of the organization b. the boss c. a supervisor d. top management Ans: A KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. What is often the result when small business managers do not delegate authority and responsibility? a. productivity increases b. employees stop trying or leave c. motivation goes up d. employees want to negotiate Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 36. The reason that an individual takes action in satisfying some need can be referred to as which of the following? a. stimulation b. self-actualization c. motivation d. delegation

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Maslow’s hierarchy of needs theory ranks the highest level of needs as ______. a. physiological b. safety and security c. esteem d. self-actualization Ans: D KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Physiological needs, according to Maslow’s hierarchy of needs theory, include which of the following? a. food and water b. safety c. security d. esteem Ans: A KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Maslow’s hierarchy of needs has five levels. These levels, in order from lowest level to highest level, are which of the following? a. self-actualization, esteem, social, safety and security, and physiological b. esteem, self-actualization, social, safety and security, and physiological c. physiological, safety and security, social, esteem, and self-actualization d. physiological, safety and security, esteem, social, and self-actualization Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Herzberg called items that make people feel positive about their jobs ______ and items that people expect in their jobs ______. a. motivators; negative factors b. negative factors; motivators c. motivators; hygiene factors d. hygiene factors; motivators Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Which of the following was listed as the most precious and limited resource of a small business? a. money b. time c. quality employees d. location Ans: B KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. An emotional state that occurs in response to demands that may come from internal or external sources is known as ______. a. stress b. distress c. confusion d. fatigue Ans: A KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 43. Paul and Wendy are planning their first family vacation to Walt Disney World. The planning experience has been challenging for them, but they are excited about the upcoming trip and are working efficiently to ensure that everything is planned accordingly. What type of stress are Paul and Wendy experiencing? a. eustress b. distress c. role conflict stress d. task overload stress Ans: A KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 44. Role conflict can be defined as ______. a. being faced with a situation that presents divergent role expectations b. not being sure where to start working c. not being sure what to do in a certain situation d. not knowing when to start working Ans: A KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. Task overload can be defined as which of the following? a. not being sure where to start working b. more work expected from the employee than time permits c. not being sure what to do with the time available d. not being sure when to start working Ans: B KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 46. Role ambiguity is ______. a. not being sure where to start working b. being faced with a situation that presents divergent role expectations c. not being sure what to do in a certain situation d. not knowing when to start working Ans: C KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 14-1 Scenario 14-1. Larry owns and manages a pasta shop in a large Italian town. He employs 12 people, all of whom are fine employees. Larry has a degree in management and knows there are several functions and techniques he must pay close attention to in order to be an effective manager. The pasta shop has always been profitable for Larry and his staff.

NARREND 47. In Scenario 14-1, Larry remembers that leading is getting the most ______ possible from the available ______. a. work; employees b. output; resources c. resources; suppliers d. resources; profit Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership in Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-1 48. In Scenario 14-1, Larry also remembers that controlling is comparing what was initially ______ with what was actually ______. a. received; bought b. ordered; received c. planned; accomplished d. accepted; defined Ans: C KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-1 49. In Scenario 14-1, for Larry, efficiency is when he ______. a. makes a high profit with low expenses b. uses all available resources to produce a high amount of output c. does all of his tasks the right way the first time d. accomplishes his goals and tasks while making the most of the available resources Ans: D KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-1 50. In Scenario 14-1, Larry knows that effectiveness from a manager’s view means ______. a. achieving stated goals b. achieving high profits c. achieving low expenses d. achieving business growth Ans: A KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-1 51. In Scenario 14-1, Larry has had so much business lately that some of his orders are not being filled on time. His costs are also rising out of control and there is a feeling of chaos in his business. Larry is experiencing ______. a. growing sickness b. growing pains c. internal sickness d. psychological disorders Ans: B KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-1 NARRBEGIN: 14-2 Scenario 14-2. Larry’s pasta shop has been growing continuously. The shop is now three times the size it was when Larry first opened it 10 years ago. There are now 26 employees working in three different shops. Larry has finally controlled his costs and has made his overall system of doing business more efficient. His two brothers, Lon and Lyn, manage the other two shops. The brothers have a partnership agreement.

NARREND 52. In Scenario 14-2, Larry can remember when he was running the first pasta shop alone. At that point he was in the ______ stage of growth. a. initial b. existence c. survival d. success Ans: B KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-2 53. In Scenario 14-2, when Larry hired his first employees, he went through the transition to enter the ______ stage of growth. a. existence b. survival c. takeoff d. success Ans: B KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-2 54. In Scenario 14-2, Larry has shown that he is an excellent manager. However, judging by the success of his pasta shops, Larry is probably also an excellent ______ since he has directed and influenced his employees into a highly successful business.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. follower b. dreamer c. leader d. supervisor Ans: C KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 14-2

True/False 1. All businesses must be managed or they will cease to exist.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The four functions of management are planning, leading, organizing, and controlling.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Management is getting things done through available resources.

Ans: F KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. More time will be spent by the business owner performing the basic tasks of running the business, such as cleaning machinery, as the business is beginning than will occur later in the life cycle of the business.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The four management functions of planning, organizing, leading, and controlling are continuous and interrelated.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. The negotiator role of managing an organization involves continuously going to bat for the resources needed for the success of the company.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Managers tend to work on a wide variety of activities that are brief and have little continuity throughout an eight-hour work day.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Managers have no regular duties that must be performed throughout the day.

Ans: F KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 9. Managers are people who must depend on judgment and intuition more than they depend on technology.

Ans: T KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Effectiveness and efficiency, defined, are interchangeable words.

Ans: F KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Growth is a natural, usually desirable, consequence of being in business.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. Growing businesses do not necessarily need changes in management techniques.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. A growing business will experience five different stages of growth.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 14. The distinguishing characteristic of the existence stage of growth is that the business owner is running the business alone.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The distinguishing characteristic of the second stage of growth is that the key problem shifts to cash flow.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. The distinguishing characteristic of the third stage (the success-disengagement stage) of growth is that the business owner is removing a level of supervision.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The distinguishing characteristic of the takeoff stage of growth is that the business has been reduced to a single department with one supervisor.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. The greatest concerns in the resource maturity stage are to consolidate and control the finances generated by rapid growth.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The takeoff stage of small business growth is the stage that all business owners should aspire to reach rapidly and maintain indefinitely.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. When transitioning a small business to professional management, it is important to avoid delegation.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. One attribute of a professionally managed small business is that it plans and manages growth.

Ans: T KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. An NFIB survey shows that “poor earnings” are the most important problem facing small business owners.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Your three broad choices for exit strategy include sell, merge, or close.

Ans: T

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. When developing an exit strategy for a current business, it is important to rely on research and analysis and avoid following instincts.

Ans: F KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Small businesses need managers who are also leaders.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Leadership abilities are not necessary for small business owners since they do not work closely with people.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Leadership is the process of directing and influencing the actions of members within a group.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 28. Vision is having a written plan of where the business is headed in the future.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. The art of negotiation is really more important for large businesses than small ones.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Written and oral communication 30. Skillful negotiators are better at talking than listening.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Written and oral communication 31. In all business negotiations, the goal for each party should be win-lose.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Written and oral communication 32. Delegation empowers employees, meaning that it increases their involvement in their work.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 33. Motivation is the reason an individual takes an action in satisfying some need.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. Maslow’s hierarchy of needs states that people have a common set of universal needs.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. The lowest needs in Maslow’s hierarchy are psychological needs.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. The lowest needs according to Maslow’s hierarchy are physiological needs.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Items that cause people to feel positive about their job are known as motivators according to Herzberg’s motivation-hygiene theory.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 38. Items that people expect on the job are known as hygiene factors according to Herzberg’s motivation-hygiene theory.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. According to Herzberg, if a lower level need arises for an employee, the employee will still be able to concentrate on higher level needs.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Money always motivates people.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Fear always motivates people.

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Management is the efficient and effective use of resources.

Ans: T KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 43. Parkinson’s law states that “anything that can go wrong, will go wrong.”

Ans: F KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 44. The negative side of stress, called distress, is caused by uncertain outcome and importance to the individual.

Ans: T KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. For a situation to create eustress for a person, two conditions are necessary: the outcome must be uncertain, and it must be a matter of importance to the person.

Ans: F KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. A person’s physical condition affects his response in stressful situations.

Ans: T KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Compare and contrast two of the four functions of management.

Ans: planning controlling

Hatten, Small Business Management 7e SAGE Publishing, 2020 organizing leading KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Describe at least three roles that, according to Mintzberg, are needed by managers to effectively plan, organize, lead, and control business operations.

Ans: resource allocator role monitor role leader role entrepreneur role negotiator role KEY: Learning Objective: 14.1: Describe the functions and activities involved in managing a small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.1: Managing Small Business Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. Discuss three of the five stages of business growth.

Ans: Existence stage the owner runs the business Survival stage other people are hired work must now get done through others Success stage a level of supervision is added Takeoff stage the business has grown to include multiple departments and numerous supervisors Resource stage the company has arrived KEY: Learning Objective: 14.2: Explain the stages of small business growth and their consequences for managing your business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.2: Small Business Growth Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Discuss three attributes that business leaders will need in the coming decade.

Ans: vision communicating ability

Hatten, Small Business Management 7e SAGE Publishing, 2020 self-confidence and dependability adaptability commitment creative ability ability to follow through ability to take action KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Provide at least three tips for managing time effectively.

Ans: make a to-do list eliminate time wasters remember Parkinson’s Law schedule time for special projects and activities know when you are most productive KEY: Learning Objective: 14.4: Discuss time and stress management as they relate to small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.4: Special Management Concerns: Time and Stress Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Compare and contrast Maslow’s hierarchy of needs and Herzberg’s motivationhygiene theory.

Ans: Maslow’s hierarchy of needs people have universal needs ordered in importance physiological, safety, social, esteem, and self-actualization needs a variety of ways to motivate behavior is needed.

Herzberg’s motivation-hygiene theory factors producing job satisfaction are not the same factors that produce job dissatisfaction things that cause people to feel positive about their jobs are motivators things that cause people to feed negative about their jobs are hygiene factors need to create an opportunity for people to achieve KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 7. Employee theft is a serious problem for small business owners. Discuss how you would try to minimize it in your business.

Ans: buy insurance against theft and fraud be rigorous in employee screening create a culture of honesty with a written code of ethics do not leave cash unsecured change the time of day and route for bank deposits schedule employees to work with someone else around communicate your screening of every check written divide all financial tasks KEY: Learning Objective: 14.3: Discuss the significance of leadership and motivation in regard to employees of small business.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 14.3: Leadership In Action Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Test Bank CHAPTER 15: HUMAN RESOURCE MANAGEMENT Multiple Choice 1. The ______ is the process of gathering all information about a particular job. a. job analysis b. job description c. job specification d. job detail Ans: A KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The jobholder’s responsibilities would be included in which section of the job description? a. job identification section b. essential duties section c. task statement section d. job summary section Ans: D KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. The ______ is the most commonly used job analysis technique. a. interview b. questionnaire c. skill test d. job observation Ans: B KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. The purpose of the ______ is to identify the duties, tasks, and responsibilities of a position. a. job detail b. job specification

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. job analysis d. job description Ans: D KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The ______ section of the job description would include the job title, job location or department within the company, and date of job origin. a. job summary b. job identification c. task statement d. job advertisement Ans: B KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. The ______ of the job description identifies the knowledge, skills, abilities, and educational levels needed to perform the job and to establish performance standards for the position. a. task list section b. task statement section c. job summary section d. education summary section Ans: B KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Whitney has decided that her bakery business needs an additional employee. She is currently in the process of gathering information about the new bakery position, and she is working on drafting a job description and specifications. Whitney is involved in which human resources process? a. job analysis b. job recruitment c. job synthesis d. job summary Ans: A KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 8. Harold, a downtown theatre director, will only consider females for an actress role in a new production. Under Title VII and other anti-discrimination laws, which of these is true? a. Harold is breaking the law b. Harold is exempt due to bona fide occupational qualifications c. Harold must interview males interested in the job, even if they have no chance of being selected d. Harold must hire a male actor regardless of what is best for the production Ans: B KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 9. A ______ indicates the skills, abilities, knowledge, and other personal requirements a worker needs to successfully perform the job. a. task statement b. job description c. job summary d. job specification Ans: D KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. The employee recruiting technique that reaches the widest and most diverse audience is which of the following? a. advertising b. employment agencies c. executive recruiters d. employee referrals Ans: A KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 11. Use of ______ allows the recruiter to obtain already screened applicants at no charge. a. executive recruiters b. employment agencies c. advertisements d. employee referrals Ans: B KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. The recruitment source that can be useful for small businesses needing one or two key people is which of the following? a. employment agencies b. advertisements c. executive recruiters d. employee referrals Ans: C KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. ______ are also known as the inside-track approach to finding job recruits. a. Relatives and friends b. Advertisements inside trade publications c. Employment agencies d. Employee referrals Ans: D KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. The advantage of hiring ______ is that abilities, expertise, and personalities are generally known beforehand. a. employee referrals b. relatives and friends

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. screened applicants d. interviewed applicants Ans: B KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The advantage of hiring ______ is that they know the skills and talents that are needed to work well within the company. a. relatives b. friends c. employee referrals d. executive recruitments Ans: C KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Which of the following sources of employee recruitment is likely to be the most expensive? a. advertising b. employment agency c. headhunter d. employee referral Ans: C KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The potential for facilitating the creation of employee cliques is a disadvantage of which employee recruitment source? a. employee referral b. executive recruiter c. Internet job site d. newspaper advertising Ans: A

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Hiring relatives and friends is usually ______. a. laden with long-term repercussions b. a more expensive source of applicants c. the cheapest source of applicants d. a quality source of energetic individuals Ans: A KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. When the situation in the business becomes acute, the issue of management succession should be entrusted to someone who is ______. a. neither part of the family nor part of the business b. a family member c. the closest friend of the family d. a company employee Ans: A KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. Family-managed businesses, except the smallest businesses, need to staff key positions with ______. a. the eldest members of the family b. the youngest adult members of the family c. company employees d. nonfamily professionals Ans: D KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 21. Whereas ______ are forms prepared by the company, ______ are personal profiles prepared by the job candidate. a. tests; cover letters b. applications; resumes c. cover letters; applications d. resumes; tests Ans: B KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. The application serves as ______. a. an explanation of the job and company b. a skill test c. a screening tool d. an honesty test Ans: C KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. ______ is considered by many to be the most crucial step in employee selection. a. Testing b. Application c. Recruitment d. Interviewing Ans: D KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Questions asked during interviews should be job related, ______ questions. a. closed-ended b. personal c. open-ended

Hatten, Small Business Management 7e SAGE Publishing, 2020 d. family-related Ans: C KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. While interviewing for a new job in a retail clothing store, Allison was asked, “How would you handle a customer who is upset with the quality of the product that was purchased?” This is an example of what type of interviewing question? a. open-ended question b. closed-ended question c. non job-related question d. illegal question Ans: A KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 26. While interviewing for an administrative assistant job, Samuel was asked to transcribe a typed letter as quickly and accurately as he could. This is an example of what type of employee test? a. physical examination b. achievement test c. personality test d. performance test Ans: D KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 27. According to the ADA, when is it admissible to give physical examinations to determine if there are physical or medical limitations to performing the duties of the job? a. during the applicant review stage b. only after a conditional offer of employment has been made c. only during the initial interview d. only after the initial interview has ended Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 28. ______ are given to measure the specific skills a person has attained as a result of their experiences or education. a. Performance tests b. Education tests c. Achievement tests d. Honesty tests Ans: C KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. ______ are administered to assess the ability of the applicant to perform the job. a. Achievement tests b. Physical examinations c. Job tests d. Performance tests Ans: D KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. ______ are given to discover any physical or medical limitations that might prevent the applicant from performing the duties of the job. a. Achievement tests b. Physical examinations c. Performance tests d. Drug tests Ans: B KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 31. Which personality test measures respondents on the five scales of neuroticism, extroversion, openness to experience, agreeableness, and conscientiousness? a. Myers Briggs Test b. NEO Personality Inventory-Revised c. Multidimensional Aptitude Battery II d. Hogan Personality Inventory Ans: B KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. The process of helping new employees become familiar with an organization, their job, and the people they will work with is known as which of the following? a. employee orientation b. job orientation c. company orientation d. policy and procedure orientation Ans: A KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. ______ is a planned effort to aid employees in learning more about their job in order to improve their performance and motivation. a. An employee improvement seminar b. An employee motivation break c. Employee training d. An employee esteem meeting Ans: C KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. ______ involves increasing the employee’s knowledge and skills to meet a specific job or company objective.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. Teaching b. Motivating c. Training d. Leading Ans: C KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. Employee ______ refers to a planned effort to provide employees with the knowledge, skills, and abilities needed to accept new and more challenging job assignments within the company. a. development b. training c. compensation d. orientation Ans: A KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. ______ is a method of training that involves one or more individuals communicating instructions or ideas to others. a. Conferencing b. Lecturing c. Programmed learning d. A correspondence course Ans: B KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 37. Programmed learning is achieved through which of the following? a. a computer screen or printed text b. a radio message played over and over c. correspondence courses d. lectures

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: A KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. ______ provides management with trained replacements in the event an employee becomes ill or leaves the company. a. An employment agency b. A headhunter c. Job rotation d. Programmed learning Ans: C KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Based on the Fair Labor Standards Act (FLSA), all employees are classified as either ______. a. tenured or nontenured b. hourly or piecemeal c. salary or commission d. exempt or nonexempt Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. Each year, Save-A-Lot Market managers select three employees to receive a onetime reward of $300 for exceeding performance standards. The annual reward has become a highly visible motivational tool within the company. This is an example what type of incentive-pay program? a. insurance benefit b. profit-sharing plan c. bonus d. flexible benefit Ans: C

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 41. ______ can be based entirely on the employee’s sales volume. a. Salaries b. Hourly wages c. Piecework rates d. Commissions Ans: D KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. Under most profit-sharing plans, employers make ______ the percentage of salary contributions that the employee contributes. a. twice b. the same c. one-half d. employers do not make contributions under profit-sharing plans Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Benefit packages that allow each employee to select the benefits that best suit their financial and lifestyle needs are known as which of the following? a. employee-based benefits b. flexible benefits c. individual-based benefits d. compensation time benefits Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 44. One of the most common and valued employee benefits is which of the following? a. profit-sharing b. health insurance c. bonuses d. pension plans Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. An employee ______ consists of any supplement to wages and salaries. a. promotion b. work test c. referral d. benefit Ans: D KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. One of the provisions of the 2010 Affordable Health Care Act is that small businesses will be allowed to join pools in order to obtain lower premiums and to help in administering health care programs. These pools are referred to as ______. a. Small Business Health Options Programs (SHOPs) b. Health Care Development Options (HCDOs) c. Health Maintenance Organizations (HMOs) d. Preferred Provider Organizations (PPOs) Ans: A KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. A simplified employee pension plan is only available to ______. a. lower level management b. the self-employed

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. employers d. government employees Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. Flexible work schedules are a benefit that meet the needs of which of the following categories? a. bonuses b. pension plans c. child care d. flexible benefit packages Ans: C KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. The number and variety of employee benefits are limited only by ______. a. the government’s willingness and ability to pay the benefits b. the employer’s willingness and ability to pay the benefits c. the employee’s willingness and ability to pay the benefits d. the public’s willingness and ability to pay taxes Ans: B KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. Selma, an HR manager at a research center, explains to a new employee that he could be discharged for any or no reason, cause or no cause, unless it is specifically prohibited by law. The research center has what type of HR policy in place? a. appeal doctrine b. at-will doctrine c. just cause contract d. implied contract Ans: B

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking 51. The correct sequence for action under a progressive discipline system, in order, is ______. a. oral reprimand, written notice, suspension, and discharge b. written notice, oral reprimand, suspension, and discharge c. written notice, suspension, oral reprimand, and discharge d. oral reprimand, suspension, written notice, and discharge Ans: A KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 52. Which of the following could be a restriction on the right to fire employees for at-will employers? a. simplified contract b. fair faith and good dealing c. public policy exception d. just reason doctrine Ans: C KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 53. Just cause means that ______. a. the employee was terminated for no good reason b. there was due process and reasonability on the part of the employer c. there was due process and reasonability on the part of the employee d. there was only a single reason for employee termination Ans: B KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 15-1 Scenario 15-1. Joey owns a small business called Joey’s Delivery Service. He delivers orders around town for his customers and employs 10 delivery drivers. Recently, two of his delivery drivers quit to move to a different town and left Joey needing two new employees. His employees must have spotless driving records, be clean-cut, and wear the standard delivery uniform.

NARREND 54. In Scenario 15-1, Joey needs to gather all information about the delivery driver job before he can hire effectively and efficiently. This is called ______. a. job analysis b. job description c. job specification d. job detail Ans: A KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-1 55. In Scenario 15-1, delivery drivers’ responsibilities would be included in which section of the job description? a. job identification b. essential duties c. task statements d. job summary Ans: D KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-1 56. In Scenario 15-1, if Joey were to use the most common job analysis technique, he would be using the ______. a. interview b. questionnaire

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. skill test d. job observation Ans: B KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-1 57. In Scenario 15-1, Joey could ______ to reach the widest and most diverse audience available to recruit his two new employees. a. advertise b. use an employment agency c. use an executive recruiter d. use an employee referral Ans: A KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-1 58. In Scenario 15-1, if Joey were to use the inside-track approach to finding two new employees, he would be using ______. a. advertising b. employment agencies c. executive recruiters d. employee referrals Ans: D KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-1 NARRBEGIN: 15-2 Scenario 15-2. Joey owns a small business called Joey’s Delivery Service. He delivers orders around town for his customers and employs 10 delivery drivers. Recently, two of his delivery drivers quit to move to a different town and left Joey needing two new employees. His employees must have spotless driving records, be clean-cut, and wear the standard delivery uniform.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Joey’s Delivery Service is in need of two employees. Joey has tried advertising and employee referrals but has still not found a new employee. Joey is now considering going to an employment agency. Another source of employees Joey has considered are his brothers, Larry and Lonnie. Joey also has several cousins and nieces and nephews.

Joey desperately needs to fill the two vacant positions but he wants to find quality employees who will do a quality job.

NARREND 59. In Scenario 15-2, if Joey were to go to an ______ he could get screened applicants at a very low charge. a. advertising agency b. employment agency c. executive recruiter d. employee referral Ans: B KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-2 60. In Scenario 15-2, if Joey were to hire some of his family members to fill the positions, he will probably find his choice to result in ______. a. long-term repercussions b. greater expenses c. fewer expenses d. more quality employees Ans: A KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-2 61. In Scenario 15-2, the application would serve Joey as a ______. a. skill test b. explanation of the job and company c. screening tool d. honesty test Ans: C KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-2 62. In Scenario 15-2, the delivery drivers at Joey’s business must lift around 40 pounds at a time when making deliveries. Joey would be able to legally require ______. a. an achievement test b. physical examinations c. performance tests d. honesty tests Ans: B KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 15-2

True/False 1. Employees are an expendable resource. New recruits are always available.

Ans: F KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. Small business owners should realize that the single most valuable asset of a company is the employees.

Ans: T KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. Recruitment involves attracting talented individuals to the company.

Ans: T KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. A job summary details the logical steps needed to compete the overall duties of a job.

Ans: F KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. The job description indicates what is done on the job, how it is done, who does it, and to what degree.

Ans: F KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Job analysis is the foundation on which all human resource activities are based and, if needed, defended in court.

Ans: T KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The job specification would include sections on job identification, job summary, essential duties to be performed, task lists for each duty, and task statements.

Ans: F KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Employees may be recruited from a variety of sources, each with advantages and disadvantages.

Ans: T KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 9. Help-wanted ads placed in the newspaper will usually yield the highest quality applicants.

Ans: F KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Executive recruiters are also known as headhunters.

Ans: T KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. An inexpensive source that can generate qualified and highly motivated employees is current employee referrals.

Ans: T KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. According to Peter Drucker, small business owners should only hire family members if they are at least as able and hardworking as any unrelated employee.

Ans: T KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. An advantage of using resumes as an employee selection tool is that they are always factual and accurately portray potential job candidates’ knowledge, skills, and abilities.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Four commonly used tools for selecting employees include the application form, the resume, the selection interview, and testing.

Ans: T KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. The application form should be complex and long in order to gain as much of the necessary information as possible in a written format for reference.

Ans: F KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Questions asked in interviews need not be related to the job description or job specification.

Ans: F KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. The first step in the screening process should be a physical examination in order to discover any physical or medical limitations that would screen out the physically unworthy applicants.

Ans: F KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 18. According to the American Council for Drug Education, employees that use drugs on the job are just as productive as those who do not use drugs.

Ans: F KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. Not all new employees will have to be introduced to the methods and procedures within the company.

Ans: F KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. A formal orientation will ensure that the new hire is welcomed to the company in a positive, complete, and cost-effective manner.

Ans: T KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. The employee orientation should be brief but thorough, lasting only one day.

Ans: F KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. Employee orientation is an important tool for reducing employee turnover.

Ans: T KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. On-the-job training is especially useful for updating current knowledge and acquiring new information.

Ans: F KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. Nonexempt employees, according to the FLSA act of 1938, may be paid a salary less than minimum wage.

Ans: F KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. A set rate of pay for each hour worked is known as an hourly wage.

Ans: T KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. Bonuses are generally awarded every paycheck throughout the year if performance standards are continually exceeded.

Ans: F KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Part of an employee’s compensation, in addition to wages and salaries, is known as bonuses.

Ans: F

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. An advantage of flexible benefit packages is that they can reduce one’s taxable income while increasing benefit options.

Ans: T KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Individual retirement accounts (IRAs) allow employees to make tax-exempt contributions of up to $3,000 per year into their own account.

Ans: T KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. IRAs have greater tax advantages that do 401(k) plans.

Ans: F KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. It is suggested that every employee handbook include a disclaimer specifying that the handbook is not a contract of employment.

Ans: T KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020

Short Answer 1. Discuss the importance of a job analysis, job description, and job specification.

Ans: Job analysis indicates what is done on the job, how it is done, and who does the job ∙ foundation upon which all other human resource activities are based ∙ is the basis for a court defense Job description ∙ identifies the duties, tasks, and responsibilities of the position ∙ should include a job identification section, a job summary, the essential duties to be performed, a list of tasks, and task statement sections Job specification ∙ indicates the skills, abilities, knowledge, and personal requirements a worker needs to successfully perform the job ∙ requirements must be necessary in order to successfully perform the job KEY: Learning Objective: 15.1: Discuss the importance of hiring the right employees.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.1: Hiring the Right Employees Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Discuss three places from which a small business owner could recruit employees.

Ans: advertising employment agencies headhunters employee referrals relatives and friends KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 3. When considering hiring family members, what are three rules to follow according to Peter Drucker?

Ans: Family members should be at least as able and hardworking as any unrelated employee.

Key positions should be staffed with nonfamily members whenever possible.

The issue of management succession should be entrusted to someone who is neither part of the family nor part of the business.

KEY: Learning Objective: 15.2: Evaluate the advantages and disadvantages of the six major sources of employee recruitment.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.2: Employee Recruitment Difficulty Level: Medium

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Analytical thinking 4. Once a pool of applicants has been obtained, discuss two processes involved in selecting employees.

Ans: application form resume ∙ selection interview ∙ testing KEY: Learning Objective: 15.3: Describe the four tools commonly used in employee selection.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.3: Selecting Employees Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Discuss two methods of training employees.

Ans: lectures ∙ conferences programmed learning role playing job rotation correspondence courses KEY: Learning Objective: 15.4: Discuss the need for employee training and name the seven methods of providing this training.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.4: Placing and Training Employees Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Discuss two methods of determining wage rates.

Ans: hourly wages salaried employees piecework rates commissions incentive pay programs KEY: Learning Objective: 15.5: Explain the two components of a compensation plan and the variable elements of a benefits system.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.5: Compensating Employees Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Discuss the three components of a written notice issued to an employee.

Ans: documentation of what was unacceptable about the employee’s performance what the expected performance is what the consequences are of not making the required changes

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 15.6: Profile an effective sequence for disciplining and terminating employees.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 15.6: When Problems Arise: Employee Discipline and Termination Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 Test Bank CHAPTER 16: OPERATIONS MANAGEMENT

Multiple Choice 1. The processes and procedures of converting labor, materials, money, and other resources into finished products or services available for consumer consumption are referred to as ______. a. the supply chain function b. the operations function c. the marketing function d. the input function Ans: B KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. UrbanSki Company manufactures skis and snowboards using polymers, plastics, and metals. The company employs trained workers to handle the production. All of these are examples of which operating system element? a. controls b. processes c. outputs d. inputs Ans: D KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. ______ are tangible or intangible products that a business produces. a. Controls b. Processes c. Outputs d. Inputs Ans: C KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 4. Inputs, transformation processes, outputs, control systems, and feedback are the five basic elements of ______. a. human resource management b. transformation management c. operations management d. time management Ans: C KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Inputs are important to the ______ of the finished product. a. quantity produced b. quality c. location d. timing Ans: B KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. What a business does to add value to inputs when converting them to outputs is known as which of the following? a. inputs b. transformation processes c. outputs d. feedback Ans: B KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. The active practices such as concepts, procedures, and technologies that are implemented to produce outputs are the basis for ______. a. inputs b. the transformation processes c. outputs d. feedback Ans: B KEY: Learning Objective: 16.1: Describe the elements of operations systems.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Raw materials, skills, knowledge, money, information, and energy are all ______ for a business to use in the process of producing a product. a. inputs b. transformation processes c. outputs d. feedback Ans: A KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. The process by which the input, transformation, and output phases are monitored in order to identify problems is known as ______. a. a control system b. the transformation process c. output d. feedback Ans: A KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Employee behavior in a service business would fall under which of the following? a. inputs b. the transformation processes c. outputs d. feedback Ans: B KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 11. Social responsibility is a business’s obligation to ______. a. the competitors b. the employees

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. the community d. the government Ans: C KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. ______ is the measure of production, or output per worker. a. Productivity b. Quality control c. Efficiency d. Effectiveness Ans: A KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Communication tools that are used to connect control systems to the processes of business are known as ______. a. inputs b. the transformation processes c. outputs d. feedback Ans: D KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Reducing inputs into component parts to extract products is which of the following? a. an analytic system b. a synthetic system c. a continuous process d. an intermittent process Ans: A KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 15. Restaurants that take food, music, lighting, and human resources and combine them into meals are using which of the following? a. an analytic system b. a synthetic system c. a continuous process d. an intermittent process Ans: B KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. A production process that operates for long periods of time without interruption is known as a/an ______. a. analytical thinking system b. synthetic system c. continuous process d. intermittent process Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. Microbreweries or winemakers use which of the following when producing goods? a. an analytic system b. a synthetic system c. a continuous process d. an intermittent process Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Custom printing shops and custom jewelry makers use which of the following in order to produce their product? a. an analytic system b. a synthetic system c. a continuous process d. an intermittent process Ans: D KEY: Learning Objective: 16.2: Explain how to measure productivity.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. The primary reason small businesses can now compete with larger businesses in the area of manufacturing is ______. a. today’s lower costs b. today’s more skilled worker c. easy availability of financing d. automation that makes flexible production possible Ans: D KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 20. In an effort to increase productivity, some service businesses like Merry Maids house cleaning service and Jiffy Lube auto service are switching from the intermittent operations management process to the ______ process. a. individual customization b. mass customization c. continuous d. intermittent Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 21. Many larger businesses are deciding that manufacturing is not their specialty, so they are doing which of the following? a. changing the products they make b. exporting the necessary parts c. giving out production contracts to smaller businesses and letting them provide the parts d. hiring manufacturing experts to help increase their skills in that area Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 22. A significant difference between service and manufacturing operations is ______. a. the amount of customer contact involved b. the expense of providing the product c. the number of sales involved d. the length of time required for production Ans: A KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. The ratio of inputs used to produce outputs is called ______. a. efficiency b. effectiveness c. productivity d. quality Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. In the goal of keeping productivity high, a small business owner should look for ways to increase outputs while ______. a. keeping inputs constant b. increasing inputs c. increasing expenses d. decreasing sales Ans: A KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. In the goal of keeping productivity high, a small business owner should look for ways to keep outputs constant while ______. a. keeping inputs constant b. increasing inputs c. increasing expenses d. decreasing inputs Ans: D KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. In a factory setting, which of the following would be an example of an output? a. painting process b. manufacturing process c. waste product d. raw material Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. Total productivity can be determined by dividing total outputs by ______. a. total expenses b. total sales c. total inputs d. total assets Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. If a bagel company sold $400,000 worth of bagels and used $150,000 worth of resources, the productivity ratio would be ______. a. 0.375 b. 2.67 c. 3.33 d. 37.5 Ans: B KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 29. Small business owners can increase the productivity of their business by ______. a. increasing outputs b. decreasing inputs c. increasing outputs and decreasing inputs d. decreasing outputs and increasing inputs

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: C KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. In the chocolate factory segment of a business, 4,000 pounds of candy can be produced from 1,750 pounds of chocolate. What is the chocolate productivity ratio? a. 0.4375 b. 2.29 c. 2.67 d. 43.75 Ans: B KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 31. Productivity in service-related businesses has not grown as rapidly as in manufacturing businesses because service businesses are ______. a. more capital intensive b. more labor intensive c. less labor intensive d. more expensive to operate Ans: B KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 32. Scheduling is the basic operations management activity for both manufacturing and service businesses that involves ______. a. the quality of the production b. the quantity of production c. the timing of production d. the productivity level of the workers Ans: C KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 33. Scheduling is necessary to maximize levels of ______. a. efficiency and customer service b. customer service and expense c. sales and expense d. efficiency and effectiveness Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 34. When materials and resources are allocated for production when the job order comes in, which of the following types of scheduling is used? a. forward scheduling b. backward scheduling c. horizontal scheduling d. vertical scheduling Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 35. When production activities are arranged around the due date for product completion, which of the following types of scheduling is used? a. forward scheduling b. backward scheduling c. horizontal scheduling d. vertical scheduling Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 36. When building a house or constructing an airplane that must be completed by a certain date, which type of scheduling should be used? a. forward scheduling b. backward scheduling c. horizontal scheduling d. vertical scheduling Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

Hatten, Small Business Management 7e SAGE Publishing, 2020 REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 37. What type of scheduling device enables a small business owner to see the time required for each step in the production process and to see the current status of a job? a. the scheduling chart b. a Gantt chart c. a timing chart d. the Herzberg chart Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 38. Information that shows the steps required to produce a product is called which of the following? a. routing b. sequencing c. dispatching d. controlling Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 39. Routing sheets are ______ while routing files are ______. a. current information; past-due information b. expense information; sales information c. the paper copy; the electronic version of the same information d. management information; supervisory information Ans: C KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 40. The detailed breakdown of information explaining how the product or service is produced is called ______. a. routing

Hatten, Small Business Management 7e SAGE Publishing, 2020 b. sequencing c. dispatching d. controlling Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 41. Which of the following is the critical step in scheduling because a holdup in one department could cause a shutdown in the rest of the plant? a. routing b. sequencing c. dispatching d. controlling Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 42. The act of releasing work to employees according to previously established priorities is known as ______. a. routing b. sequencing c. dispatching d. controlling Ans: C KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 43. Which of the following types of dispatching would a taxi company use? a. first-come, first-served rule b. earliest due date rule c. longest processing time rule d. shortest processing time rule Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy

Hatten, Small Business Management 7e SAGE Publishing, 2020 TOP: AACSB Standard: Reflective thinking 44. A company that assumes that orders that take the longest will be the largest and the most profitable would use the ______. a. first-come, first-served rule b. earliest due date rule c. longest processing time rule d. shortest processing time rule Ans: C KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 45. How well a good or service meets or exceeds customers’ expectations or the degree to which a product conforms to established tolerance standards is known as ______. a. quantity produced b. quality c. surpassing customer expectations d. total quality management Ans: B KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 46. The boundaries that a manager sets in determining the acceptable quality of a product are known as the ______. a. defect rates b. tolerance ranges c. zero defects d. defect ranges Ans: B KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 47. The number of goods produced that were out of the company’s accepted tolerance range is known as the ______. a. defect rate b. unacceptable quality rate

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. zero defects rate d. defect range rate Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 48. Companies that make a significant profit from completing more orders will use which dispatching rule? a. shortest processing time b. first-come, first served c. earliest due date d. longest processing time Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 49. In statistical terminology, sigma denotes the ______ of a set of data. a. variance b. mean c. standard deviation d. sum Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 50. Perfection is not possible, but companies are striving for which of the following? a. zero defects b. minimum defects c. one defect d. two defects Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 51. Six sigma is the tolerance range in which only ______ defects per ______ are allowed. a. 2.5; thousand b. 3.4; million c. 3.4; thousand d. 2.5; million Ans: B KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 52. ______ statistics summarizes data through the use of measures of central tendency, variance, and standard deviation. a. Inferential b. Qualitative c. Descriptive d. Quantitative Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 53. ______ statistics is the process of looking at a sample and then using statistical analysis to interpret results. a. Inferential b. Applied c. Descriptive d. Quantitative Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 54. ______ is used to determine the magnitude of an effect and to identify potential causes of variation. a. Analysis of variance b. Applied analysis c. Descriptive analysis d. Regression analysis Ans: D

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 55. Which form of control depends most strongly on total quality management principles? a. feedforward control b. concurrent control c. feedback control d. loop control Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 56. Inspecting outputs is which of the following types of quality control? a. feedforward quality control b. concurrent quality control c. feedback quality control d. intermittent quality control Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 57. The set of standards that certify that a business is using processes and principles in order to assure the production of quality products is known as which of the following? a. ISO 6000 b. ISO 9000 c. GATT 3000 d. GATT 9000 Ans: B KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 58. To monitor the quality of work in progress, many businesses are realizing the value of the international quality standards known as ______.

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. ISO 6000 b. ISO 9000 c. GATT 3000 d. GATT 9000 Ans: B KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 59. The process of comparing key points within one’s own business with comparable points in another external entity is referred to as ______. a. six sigma b. feedback control c. benchmarking d. statistical process control Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 60. The use of statistical analysis to determine the probability of a variation in a product being a random mishap or a continuous problem is known as which of the following? a. ISO 9000 b. GATT 3000 c. statistical process control d. random process control Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 61. What is the small business manager’s priority when purchasing? a. best value b. lowest price c. highest quality d. highest price Ans: A KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 16.5: Purchasing For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 62. To standardize the purchasing process, the small business manager may want to use which of these tools? a. invoice b. receiving report form c. purchase requisition d. purchase order Ans: C KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.5: Purchasing For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 63. The purchase order represents a legal offer to buy, no purchase contract exists until the seller ______. a. accepts the buyer’s offer b. sends a purchase contract c. sends an invoice d. receives payment Ans: A KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.5: Purchasing For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 64. An important factor in considering the inventory needs of many small retail businesses is ______. a. the time needed to manufacture parts b. bulk ordering to maintain high stock of items c. to fill backorders d. the time needed to get new inventory and the cost of reordering Ans: D KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 65. What is the most apparent cost of inventory?

Hatten, Small Business Management 7e SAGE Publishing, 2020 a. financing b. shelf life c. storage d. shipping Ans: A KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 66. The expenses incurred in producing inventory are called ______. a. holding costs b. stocking costs c. ordering costs d. shipping costs Ans: C KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 67. What term is used to describe when you need to restock? a. inventory cycle b. reorder point c. reorder quantity d. lead time Ans: B KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking NARRBEGIN: 16-1 Scenario 16-1. Ron’s Rifle Manufacturers is facing tough competition. Recently, their rifles have received bad publicity due to a faulty safety mechanism. Management is determined to increase the quality of the rifles and have the emphasis on quality become Ron’s competitive advantage.

NARREND 68. In Scenario 16-1, there is no factor more important to businesses than that of ______. a. price b. consumer demand

Hatten, Small Business Management 7e SAGE Publishing, 2020 c. quality d. variety Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-1 69. In Scenario 16-1, the customers view the quality of Ron’s rifles based on ______. a. how well the rifle satisfies their needs b. how closely the rifle conforms to the standards Ron has set c. how closely price mirrors performance d. how expensive the rifle is compared to competitors’ rifles Ans: A KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-1 70. In Scenario 16-1, Ron’s Rifles decides to use the tolerance range of six sigma. This means there will be ______ defects per ______. a. 2.5; 1,000 b. 6; 1,000 c. 3.4; 1,000,000 d. 4.5; 1,000,000 Ans: C KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-1 71. In Scenario 16-1, management feels very strongly that the concept of six sigma also needs to be applied to customer service. Many customers have expressed their dissatisfaction with the current level of customer service. The difference between three sigma and four sigma levels in customer service in a company with 1,000 employees and 10 stages would be which of the following? a. 100 dissatisfied customers b. 200 dissatisfied customers c. 375 dissatisfied customers d. 439 dissatisfied customers

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: D KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking NAR: 16-1 NARRBEGIN: 16-2 Scenario 16-2. Shana’s Chocolate Factory is currently making a profit. Shana, however, wishes to evaluate her scheduling methods and increase her efficiency. She feels that the process can be improved, which means more chocolates could be produced and sold. Christmas is nearing and she knows if she cannot keep up with demand, her customers may choose another chocolate factory. Chocolate and sugar are the major ingredients in her candies. She uses 2,000 pounds of sugar and chocolate combined to produce 10,000 pieces of candy.

NARREND 72. In Scenario 16-2, to measure the productivity of her business, Shana would ______. a. divide output by sales b. divide input by sales c. divide input by expenses d. divide total outputs by total inputs Ans: D KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-2 73. In Scenario 16-2, to determine the materials productivity for the sugar and chocolate, Shana would use the formula and find that the ratio was ______. a. 3 b. 5 c. 2 d. 4 Ans: B KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-2

Hatten, Small Business Management 7e SAGE Publishing, 2020 74. In Scenario 16-2, with Christmas approaching, Shana can be relatively assured she will need 50,000 pounds of chocolates based on sales from the last three years. She also knows she needs this amount produced by December 15 in order to take advantage of Christmas shopping. Which of the following types of scheduling should Shana use? a. forward scheduling b. backward scheduling c. routing d. sequencing Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-2 75. In Scenario 16-2, the detailed breakdown of information explaining exactly how each chocolate will be produced and the steps to be taken at each point in production is called which of the following? a. routing b. sequencing c. dispatching d. forward scheduling Ans: A KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking NAR: 16-2 76. In Scenario 16-2, the processes used in making various candies differ. Some candies are dipped, some are rolled in nuts, and some are layered. In determining the order with which various chocolates will go through the production system, Shana is considering which stage of the scheduling process? a. routing b. sequencing c. dispatching d. forward scheduling Ans: B KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Medium TOP: AACSB Standard: Reflective thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 NAR: 16-2 True/False 1. The outputs in an operations management system include all physical and intangible resources that come into a business.

Ans: F KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 2. The operations management system starts with inputs that are transformed into outputs using transformation processes.

Ans: T KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 3. All the outputs a business produces, including the unintentional outputs, must be considered in the output phase of operations management.

Ans: T KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 4. Feedback is the necessary written communication that links a control system to the other phases of operations management.

Ans: F KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 5. Auto salvage businesses use synthetic systems in order to produce parts and scrap iron.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 16.2: Operations Management

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 6. Restaurants use the analytic system since they use food, painting, and human resources to produce their good/service.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 7. Microbreweries or winemakers use the continuous process in producing their product.

Ans: T KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 8. Custom printing shops and custom jewelry makers use the continuous process in the production of their good/service.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Comprehension Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 9. The primary reason small businesses can compete with larger manufacturing companies is increases in productivity.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 10. Service providers need and use operations management just as much as product manufacturers do.

Ans: T KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 11. The higher the output per labor hour ratio, the less efficient the operating system.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 12. It has been found that older technology does not significantly decrease a company’s productivity.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 13. Productivity in service-related businesses has not grown as rapidly as in manufacturing businesses because service businesses are more capital intensive.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 14. Productivity in the service sector of the U.S. economy has decreased over the last decade.

Ans: F KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 15. Scheduling is necessary to maximize levels of efficiency and customer service.

Ans: T KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 16. Any type of custom production in which the product changes or where demand is unknown in advance would use forward scheduling.

Hatten, Small Business Management 7e SAGE Publishing, 2020 Ans: T KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 17. A chart that can be used to track the progress of work as a product makes its way through various departments is known as a scheduling chart.

Ans: F KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 18. Sequencing is the critical step in determining the order in which a job will go through a production system.

Ans: T KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 19. A tailor making custom-tailored suits would use the longest processing time rule for dispatching tailoring jobs.

Ans: F KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Easy TOP: AACSB Standard: Reflective thinking 20. There is no concept more important to business today than quality.

Ans: T KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 21. Six sigma means striving for 99 percent accuracy in production.

Ans: F KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge

Hatten, Small Business Management 7e SAGE Publishing, 2020 Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 22. From a customer’s perspective, quality means how closely a product conforms to the standards that are set by the business.

Ans: F KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 23. Achieving a sigma level of 4.0 would result in 6,750 defects per million.

Ans: T KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 24. The two types of statistical analysis used in six sigma include descriptive statistics and inferential statistics.

Ans: T KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 25. Inspecting and testing products after they are produced is called feedback quality control.

Ans: T KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 26. As a small business manager, you should strive to purchase the highest quality goods at a low price.

Ans: T KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.5: Purchasing For Small Business

Hatten, Small Business Management 7e SAGE Publishing, 2020 Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 27. A purchase requisition is a legal contract between you and the supplier.

Ans: F KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.5: Purchasing For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 28. It is better to make your own parts rather than buy standardized parts.

Ans: F KEY: Learning Objective: 16.5: Explain the importance of purchasing and describe its procedures.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.5: Purchasing For Small Business Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 29. Inventory represents money sitting idly on a shelf.

Ans: T KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 30. About 20 percent of the firm’s revenue will come from about 80 percent of the inventory.

Ans: F KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 31. Holding costs are the expenses you incur in either ordering or producing inventory.

Ans: F KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 32. The time period that begins when an item is at its highest desired stocking level, continues as the item is used or sold, and ends when it is replenished is called an inventory cycle.

Ans: T KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking 33. An inventory system that helps to allocate more appropriate time and attention to items is Economic Order Quantity.

Ans: F KEY: Learning Objective: 16.6: Calculate how much inventory you need and when.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.6: Managing Inventory Difficulty Level: Easy TOP: AACSB Standard: Analytical thinking

Short Answer 1. Describe three of the five elements of the operations management system.

Ans: inputs transformation process outputs control systems feedback KEY: Learning Objective: 16.1: Describe the elements of operations systems.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.1: Elements of Operating Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 2. Compare and contrast analytic manufacturing systems and synthetic manufacturing systems, giving an example of each.

Ans: Analytical thinking systems reduce inputs into component parts to extract products example--auto salvage Synthetic systems combine inputs to create a finished product or change them into different products example--restaurants KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking

Hatten, Small Business Management 7e SAGE Publishing, 2020 3. Define productivity and explain its importance to a small business owner. Describe two ways productivity can be improved.

Ans: the ratio of inputs used to produce outputs measures the efficiency of the entire business changing processes employees accomplishing more a new and improved technology KEY: Learning Objective: 16.2: Explain how to measure productivity.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.2: Operations Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 4. Describe the importance of scheduling and the process of scheduling operations.

Ans: Allows the small business owner to put plans into action Maximizes levels of efficiency If done correctly, will optimize resources Use of the Gantt chart can make scheduling easier Routing Sequencing Dispatching KEY: Learning Objective: 16.3: Recount the methods of scheduling operations.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.3: What About Scheduling Operations?

Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 5. Define quality and explain the importance of six sigma in small business.

Ans: Quality is how well the product/service satisfies the customer’s need.

From the business perspective, quality is how closely the product conforms to set standards.

Six sigma is the tolerance range where only 3.4 defects per million are allowed, thus increasing the quality of the product produced.

KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 6. Describe at least three basic components of a six-sigma program.

Ans: Define products and services as they relate to the customer.

Identify customer requirements for products and services in measurable terms.

Identify gaps between what the customer expects and what is received.

Describe the process in detail.

Simplify the process and make it mistake proof.

Measure quality and productivity and track improvement.

Hatten, Small Business Management 7e SAGE Publishing, 2020 KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking 7. Describe how benchmarking can be used to improve business functions in both production processes and customer service.

Ans: Production process--compare methodology, equipment needs, assembly time, inspection, parts availability, facility needs, personnel needs, quality circles, cost considerations, returns and repairs.

Customer service--compare goods and services availability, warranties and guarantees, cost considerations, returns/repairs/replacement, and feedback mechanisms.

KEY: Learning Objective: 16.4: Discuss the role of quality in operations management.

REF: Cognitive Domain: Knowledge Answer Location: Concept Module 16.4: Quality-Centered Management Difficulty Level: Medium TOP: AACSB Standard: Analytical thinking