Test Bank for Business Essentials 8th Canadian Edition By Ronald J. Ebert

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Test Bank for Business Essentials 8th Canadian Edition By Ronald J. Ebert

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Test Bank of business essentials 8th Canadian Edition By Ronald J. Ebert

Chapter 4 Entrepreneurship, Small Business, and New Venture Creation

4.1 Multiple-Choice Questions

1) Self-employed Canadians account for about ________ percent of the workforce.

A) 3
B) 5
C) 16
D) 22
E) 34

Answer: C

Diff: 3 Type: MC Page Ref: 75

Skill: Knowledge

Objective: 4.1

2) Approximately how many new businesses are started each day in Canada?

A) 25
B) 100
C) 250
D) 380
E) 500

Answer: D

Diff: 3 Type: MC Page Ref: 75

Skill: Knowledge

Objective: 4.1

3) Individuals who both recognize and seize opportunities are referred to as

A) speculators.
B) franchisees.
C) entrepreneurs.
D) intrapreneurs.
E) independents.

Answer: C

Diff: 1 Type: MC Page Ref: 76

Skill: Knowledge

Objective: 4.1

4) Entrepreneurs often have more than one goal for starting a business and becoming self-employed. Which of the following reasons is probably the least common goal of entrepreneurs?

A) To seek independence and be their own boss
B) To earn a comfortable living for a period of time
C) To grow and expand a current business
D) To meet community or social obligations
E) To provide for their financial needs

Answer: D

Diff: 1 Type: MC Page Ref: 76

Skill: Knowledge

Objective: 4.1

5) A new firm is

A) one that has been in business for 5 years or less.
B) one that has not yet opened for business.
C) one with less than 10 years experience.
D) one that has become operational within the previous 12 months.
E) one that opened its doors within the past 6 months.

Answer: D

Diff: 2 Type: MC Page Ref: 76

Skill: Comprehension

Objective: 4.1

6) How are intrapreneurs different from entrepreneurs?

A) The former are women and the latter are men.
B) The former are older than the latter.
C) The former work within an existing business while the latter start their own business.
D) The former earn less money than the latter.
E) There is not difference between the two terms.

Answer: C

Diff: 1 Type: MC Page Ref: 76

Skill: Comprehension

Objective: 4.1

7) A small business is an owner managed business with less than ________ employees.

A) 25
B) 50
C) 10
D) 500
E) 100

Answer: E

Diff: 2 Type: MC Page Ref: 75

Skill: Knowledge

Objective: 4.1

8) What percentage of Canadas GDP is contributed by small businesses?

A) 7 percent
B) 13 percent
C) 19 percent
D) 30 percent
E) 41 percent

Answer: D

Diff: 3 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.1

9) Which of the following is correct with regard to small business?

A) Various measures might be used to define a small business, including the number of people the business employs, the companys sales revenue, the size of the investment required, or the type of ownership structure the business has.
B) Since the Business Register tracks businesses and the Labour Force Survey tracks individuals, these sources of information are not useful in defining the term small business.
C) To be included in the Business Register, a business must have at least five paid employees.
D) In the Business Register, a goods-producing company is considered small if it has fewer than 500 employees, while a service-producing business is considered small if it has fewer than 100 employees.
E) All of these are correct.

Answer: A

Diff: 3 Type: MC Page Ref: 75

Skill: Comprehension

Objective: 4.1

10) According to Industry Canada there are about ________ people who are self- employed and about ________ business establishments.

A) 1.2 million; 1.2 million
B) 5 million; 500 000
C) 2.7 million; 2.2 million
D) 725 000; 500 000
E) 225 000; 225 000

Answer: C

Diff: 3 Type: MC Page Ref: 75

Skill: Knowledge

Objective: 4.1

11) In the Business Register, a goods-producing business is considered small if it has fewer than ________ employees, and a service-producing business is considered small if it has fewer than ________ employees.

A) 1000; 500
B) 500; 1000
C) 100; 50
D) 500; 250
E) 250; 500

Answer: C

Diff: 2 Type: MC Page Ref: 75

Skill: Knowledge

Objective: 4.1

12) In the 2015 Heritage Foundation index of economic freedom, the top three countries were ________; Canada ranked ________.

A) Australia, Japan, and Singapore; 25th
B) the United States, Germany, and Japan; 8th
C) the United States, Ireland, and Germany; 11th
D) Hong Kong, Singapore, and New Zealand; 6th
E) China, Japan, and South Vietnam; 37th

Answer: D

Diff: 3 Type: MC Page Ref: 76

Skill: Knowledge

Objective: 4.1

13) The Heritage Foundations index of economic freedom measures

A) how well command economies are performing compared to market economies.
B) the extent to which entrepreneurs have freedom to pursue new business opportunities.
C) how well entrepreneurs are performing in advanced industrialized countries compared to developing economies.
D) how much profit entrepreneurs are making in command economies compared to market economies.
E) the economic freedom entrepreneurs have in various countries, using the United States as the comparison point.

Answer: B

Diff: 2 Type: MC Page Ref: 76

Skill: Comprehension

Objective: 4.1

14) At Telus, the redesign of the companys website was the result of ________ in a large firm.

A) product refinement
B) intrapreneurship
C) entrepreneurship
D) starting a business from scratch
E) marketing research

Answer: B

Diff: 2 Type: MC Page Ref: 76

Skill: Comprehension

Objective: 4.1

15) The part of the economy that is made up of companies and organizations not owned or controlled by the government is called

A) crown corporations.
B) split sector.
C) legislated corporations.
D) public sector.
E) the private sector.

Answer: E

Diff: 2 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.2

16) According to Industry Canada, small businesses account for over two thirds of employment in all of the following except

A) other services.
B) construction.
C) accommodation and food.
D) manufacturing.
E) non-institutional health care.

Answer: D

Diff: 2 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.2

17) What percentage of businesses in Canada have less than 100 employees?

A) 98
B) 58
C) 88
D) 78
E) 28

Answer: A

Diff: 2 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.2

18) During the period from 2002 to 2012, small businesses created ________ percent of all the jobs in Canada.

A) 8
B) 15
C) 28
D) 43
E) 77

Answer: E

Diff: 2 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.2

19) Women account for ________ of all new businesses that are formed, and they lead ________ percent of the small- and medium-sized businesses that export goods and services.

A) About one-fifth; 6
B) about one-quarter; 18
C) about one-third; 18
D) more than one-half; 12
E) two-thirds; 24

Answer: D

Diff: 2 Type: MC Page Ref: 77

Skill: Knowledge

Objective: 4.2

20) What are the three key elements in the entrepreneurial process?

A) The entrepreneur, the opportunity, and the marketing plan
B) The marketing plan, the production plan, and the finance plan
C) The product (or service) plan, the entrepreneur, and luck
D) The entrepreneur, the opportunity, and the resources
E) The financing plan, the product (or service) plan, and luck

Answer: D

Diff: 2 Type: MC Page Ref: 78

Skill: Knowledge

Objective: 4.3

21) Which is the most common source of ideas for a new venture?

A) Brainstorming
B) Family
C) Work experiences
D) Children
E) Magazines

Answer: C

Diff: 1 Type: MC Page Ref: 78

Skill: Knowledge

Objective: 4.3

22) Which of the following is correct with regard to the issue of where new ideas for a business come from?

A) The most important source of ideas for a new venture arise as the result of a conscious search for new venture ideas.
B) About half of all new venture ideas come from insights gained or skills learned at a previous job.
C) Personal hobbies or interests are the most important source of ideas for a new venture.
D) Suggestions from family members are an important (but not the most important) factor in coming up with new venture ideas.
E) There is no particular pattern in the development of ideas for a new venture.

Answer: B

Diff: 3 Type: MC Page Ref: 78-79

Skill: Comprehension

Objective: 4.3

23) Sam has always been interested in starting his own business but, as a recent graduate, is not certain where he can get ideas. Which of the following is a good reliable source for information needed to make the decision to start a new business?

A) Experience in industry before starting a new business
B) Parents
C) Teachers
D) Bankers
E) Business analysts

Answer: A

Diff: 2 Type: MC Page Ref: 78-79

Skill: Comprehension

Objective: 4.3

24) When screening ideas, an entrepreneur would ask all of the following questions except

A) is the idea marketable?
B) does this idea have a high entrance cost?
C) does this idea create or add value for the customer?
D) does the idea provide a sustainable competitive advantage?
E) is the idea financially viable?

Answer: B

Diff: 1 Type: MC Page Ref: 79-80

Skill: Comprehension

Objective: 4.3

25) With regard to the process of screening possible ideas for a new idea, which of the following is correct?

A) Determining whether or not the new idea adds value for customers is not essential at this early stage of the process.
B) It is not possible to determine at this early stage whether a new idea will actually give a company a sustained competitive advantage.
C) It is important to determine if sales will lead to profits.
D) If the idea is not expected to result in making a profit for a number of years, exit costs are low.
E) All of these are correct.

Answer: C

Diff: 1 Type: MC Page Ref: 79-80

Skill: Comprehension

Objective: 4.3

26) Erin feels that she has a wonderful opportunity to create a new apple beverage she saw in Europe by using surplus apples grown near Georgian Bay in Ontario. At this point, which question must she answer in evaluating this opportunity?

A) What interest rate will be charged for financing the purchase of capital equipment?
B) What depreciation procedures will be used?
C) What kind of computers should I purchase?
D) Where will my business be located?
E) Are there enough customers willing to buy this product?

Answer: E

Diff: 2 Type: MC Page Ref: 79-80

Skill: Comprehension

Objective: 4.3

27) Robert wants to start a new business. At this point, he needs to ask himself all of the following questions except

A) what is my competitive advantage?
B) how much will the customer buy?
C) what legal form should the business take?
D) what value is created or added to for the customer?
E) what is the marketability of this idea?

Answer: C

Diff: 2 Type: MC Page Ref: 79-80

Skill: Comprehension

Objective: 4.3

28) Franchising is a contract between a(n) ________ and a(n) ________ that stipulates how ________ or ________ will be sold.

A) buyer; seller; a product; a service
B) retailer; outlet owner; food; a service
C) manufacturer; dealer; a product; a service
D) manufacturer; seller; a service; a product
E) outlet owner; dealer; food; a service

Answer: C

Diff: 3 Type: MC Page Ref: 81

Skill: Knowledge

Objective: 4.3

29) A financial forecast includes all of the following items except

A) a cash budget.
B) an estimate of start-up costs.
C) an income statement.
D) a listing of potential customers.
E) a balance sheet.

Answer: D

Diff: 3 Type: MC Page Ref: 80

Skill: Comprehension

Objective: 4.3

30) A ________ typically includes a company description, product description, marketing analysis and plan, operating plan, financial plan, and other supporting information.

A) bank loan application
B) business plan
C) tax application
D) partnership agreement
E) grant application

Answer: B

Diff: 2 Type: MC Page Ref: 81

Skill: Knowledge

Objective: 4.3

31) Which of the following is correct with regard to business planning?

A) A business plan is a good thing to have, but it is generally not a requirement for securing resources for the proposed new venture.
B) If market conditions are changing rapidly, the benefits gained from extensive research and planning will diminish quickly.
C) If the product is highly innovative, research is particularly important.
D) Planning should be completed before action is taken.
E) All things considered, it is probably best to plan to start as a franchise.

Answer: B

Diff: 2 Type: MC Page Ref: 81

Skill: Comprehension

Objective: 4.3

32) Bootstrapping means

A) doing more with less.
B) selling shares.
C) designing new products.
D) preparing a business plan.
E) creating new ideas.

Answer: A

Diff: 3 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

33) Assets that a borrower uses to secure a loan or other credit are referred to as

A) financed assets.
B) tangible assets.
C) fixed assets.
D) collateral.
E) assignments.

Answer: D

Diff: 1 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

34) One popular source of equity capital is informal capital from private investors who are known as

A) private loaners.
B) traditional lenders.
C) pseudo loaners.
D) off-the-books financers.
E) angels.

Answer: E

Diff: 2 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

35) Which one of the following statements is correct?

A) Love money is a form of debt financing.
B) Suppliers typically provide long-term financing.
C) Debt financing refers to money invested by the owner in the company.
D) Borrowing money reduces the potential for higher returns when a business is performing well.
E) Banks are typically risk averse.

Answer: E

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

36) Bootstrapping involves all of the following actions except

A) acquiring resources such as people and equipment.
B) doing more with less.
C) purchasing as many resources as possible.
D) using other peoples resources.
E) borrowing materials.

Answer: C

Diff: 1 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

37) Venture capitalists

A) require collateral for all transactions.
B) are risk averse lenders.
C) invest funds from professionally managed pools of investor money.
D) offer loans with a maximum 90-day payback period.
E) are individuals in the United States who are willing to loan money to Canadians who want to start a business.

Answer: C

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

38) Karen is trying to assess whether she can start her own small business. But, as with many small businesses, money is a problem. She asks for your help. You indicate that the most likely source of money for starting up a small business is

A) family investment.
B) lottery winnings.
C) banks.
D) credit unions.
E) personal savings.

Answer: E

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

39) With respect to the financing of a business, which one of the following statements is accurate?

A) Love money is the most popular form of debt financing.
B) Suppliers typically provide long-term financing.
C) Debt financing refers to money invested by the owner in the company.
D) Borrowing money reduces the potential for higher returns when a business is performing well.
E) Banks are typically risk averse.

Answer: E

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

40) Which of the following statements is (are) correct with respect to financing a business?

A) Debt financing refers to money that is borrowed, while equity financing refers to money that is invested in the business by investors in return for a share of the ownership of the company.
B) The most common source of debt financing is venture capitalists.
C) Choosing between debt and equity financing involves trade-offs with regard to immediate vs. long-term profitability.
D) Most new venture founders prefer equity financing because they are reluctant to give up any control to outsiders.
E) All these statements are correct.

Answer: A

Diff: 1 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

41) Which source of capital is identified as a group of small investors who are willing to invest money into the new firm in exchange for an ownership share?

A) Venture capital firm
B) Foreign investors
C) Stockbroker syndicate
D) Silent domestic partner
E) Banks

Answer: A

Diff: 2 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

42) Trade credit is

A) the selling of bonds or debentures.
B) reinvested in the enterprise.
C) paid to the owners in the form of dividends.
D) derived from funds generated from the operation of the business.
E) delayed payment terms offered by suppliers.

Answer: E

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

43) An example of a debt source of funds is ________ and an example of an equity source of funds is ________.

A) family and friends; venture capitalists
B) private lenders; family and friends
C) private lenders; trade credit
D) venture capitalists; private lenders
E) family and friends; private lenders

Answer: B

Diff: 3 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

44) A business is normally at its riskiest point during the ________ phase.

A) preliminary
B) growth
C) start-up
D) maturity
E) conception

Answer: C

Diff: 2 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

45) All of the following are common sources of equity for new ventures except

A) banks.
B) personal savings.
C) love money.
D) private investors.
E) venture capitalists.

Answer: A

Diff: 2 Type: MC Page Ref: 82

Skill: Knowledge

Objective: 4.3

46) Which of the following is correct with regard to collateral?

A) It refers to business (but not personal) assets that a borrower uses to secure a loan or other credit.
B) It consists of tangible assets like buildings as well as intangible assets like goodwill.
C) Collateral can be seized by the lender if the loan is not repaid according to specified terms.
D) It refers to personal (but not business) assets that a borrower uses to secure a loan or other credit.
E) Banks are most impressed with debt investment.

Answer: C

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

47) Which of the following statements is accurate?

A) Love money is a form of debt financing.
B) Borrowing money reduces the potential for higher returns when a business is performing well.
C) Debt financing refers to money invested by the owner in the company.
D) Banks are typically risk averse.
E) Suppliers typically provide long term-financing.

Answer: D

Diff: 2 Type: MC Page Ref: 82

Skill: Comprehension

Objective: 4.3

48) The ________ fit involves determining if the resources needed to capitalize on the opportunity can be acquired.

A) resource-entrepreneur
B) personal-entrepreneur
C) entrepreneur-opportunity
D) opportunity-resource
E) entrepreneur-resource

Answer: D

Diff: 2 Type: MC Page Ref: 84

Skill: Knowledge

Objective: 4.3

49) Judy is a graduate from a denturist program. Normally, graduates start up their own business, much like dentists and doctors. She has the choice of starting on her own or buying an existing practice. What is an advantage for her of starting a new business from scratch?

A) No problems as a result of the prior owners errors
B) Odds are better to succeed
C) Relationship with suppliers already established
D) Needs and desires of customers known
E) The risks are lower than if she were to buy an existing practice

Answer: A

Diff: 1 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

50) Which of the following is the most significant disadvantage of starting a business from scratch?

A) Having few employees
B) Inability to franchise
C) Having competition
D) Coming up with new ideas
E) The risk of failure

Answer: E

Diff: 1 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

51) Harolds father owns a plumbing business, which Harold will likely take over. However, Harold needs to know the problems that beset family businesses. Which of the following is not a problem in a family business?

A) Untrained and uneducated family members as personnel
B) Failure to respond to changing market conditions
C) Choosing an appropriate successor
D) Consistent under-financing
E) Disagreement among family members about the future of the business

Answer: D

Diff: 2 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

52) Jody is a young graduate from a business program. She can either help out in the family business or work with another organization. Which of the following is not a typical advantage associated with a family business?

A) Highly trained individuals
B) Valuable community relationships
C) Personal sacrifices leading to financial advantage
D) High employee loyalty
E) Unified family management

Answer: A

Diff: 1 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

53) Ted is about to take over a family business. The issues of which he should be aware include all of the following except

A) assuring economic security for the retiring leader and spouse.
B) training the successor.
C) benefits for the successor.
D) timing the succession.
E) successor selection.

Answer: C

Diff: 1 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

54) Margaret has an opportunity to buy an existing business. She should be knowledgeable about all of the following issues except

A) the location of the business.
B) legal form of the business.
C) difficulty in determining an appropriate price for the business.
D) incomplete knowledge of the state of the business.
E) the reputation of the business.

Answer: B

Diff: 1 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

55) About one-third of all new businesses owners

A) buy an existing business.
B) start from scratch.
C) buy out a partner.
D) win the business in a draw.
E) inherit the business.

Answer: A

Diff: 2 Type: MC Page Ref: 85

Skill: Comprehension

Objective: 4.4

56) To start up a new business by operating under a license issued by a parent company to local entrepreneurs who own and manage the business is known as

A) a small business.
B) a macroenterprise.
C) an enterprise.
D) a microenterprise.
E) a franchise.

Answer: E

Diff: 1 Type: MC Page Ref: 86

Skill: Comprehension

Objective: 4.4

57) Roger has made a list of what he considers to be advantages of buying a franchise. You tell him that one item on his list is not an advantage. Which one is it?

A) Improved chances of success
B) Access to big business management skills
C) Dont have to build a business step by step
D) Incentive of owning your own business
E) Low start-up costs

Answer: E

Diff: 2 Type: MC Page Ref: 86

Skill: Comprehension

Objective: 4.4

58) What is the most significant disadvantage of owning a franchise?

A) Start-up costs
B) Operational guidelines
C) Difficulty obtaining loans
D) Double taxation
E) Competition

Answer: A

Diff: 2 Type: MC Page Ref: 86

Skill: Comprehension

Objective: 4.4

59) Which of the following is not likely to be provided by the seller of a franchise?

A) Financing help
B) Guarantee of success
C) Marketing strategy
D) Training for employees and managers
E) Management advice

Answer: B

Diff: 2 Type: MC Page Ref: 86-87

Skill: Comprehension

Objective: 4.4

60) Which of the following is considered an advantage for both the franchisee and the franchisor?

A) Guaranteed success
B) Economies of scale in buying
C) Promotion savings
D) Recognition
E) Management assistance

Answer: D

Diff: 2 Type: MC Page Ref: 86-87

Skill: Comprehension

Objective: 4.4

61) The benefits of franchising the franchiser enjoys include all of the following except

A) more revenue.
B) more financing.
C) more involvement in the details of local operations.
D) advertising money is spent more efficiently.
E) rapid growth.

Answer: C

Diff: 2 Type: MC Page Ref: 86-87

Skill: Comprehension

Objective: 4.4

62) In a franchise agreement, the ________ is purchasing the right to sell the products of the ________.

A) franchisee; franchiser
B) franchiser; parent company
C) franchiser; franchisee
D) pigeon; shyster
E) subleaser; leaser

Answer: A

Diff: 2 Type: MC Page Ref: 86-87

Skill: Knowledge

Objective: 4.4

63) Molly believes that success is almost guaranteed when one buys a franchise. You point out that she should consider the costs such as

A) emergency needs.
B) operational expenses.
C) the franchise sales price.
D) training expenses.
E) all of these.

Answer: E

Diff: 1 Type: MC Page Ref: 86

Skill: Comprehension

Objective: 4.4

64) Which of the following is not one of the disadvantages of owning a franchise?

A) High failure rates
B) Sacrifice of independence
C) Difficult to terminate
D) On-going payments to the parent company
E) High start-up costs

Answer: A

Diff: 2 Type: MC Page Ref: 86-87

Skill: Comprehension

Objective: 4.4

65) Which of the following is an advantage for the franchisee?

A) Freed from detail of local operations
B) Recognition
C) Rapid growth for the franchise
D) Low entry cost
E) Guaranteed success

Answer: B

Diff: 2 Type: MC Page Ref: 86-87

Skill: Comprehension

Objective: 4.4

66) Viola wants to be a business owner and is contemplating whether to start her own business or open a franchise. Which of the following, if true, would be a compelling reason for Viola to open a franchise rather than start a new business?

A) The franchiser requires $3000 in start-up costs and a 5 percent monthly royalty fee.
B) The franchiser tightly controls and monitors the service protocol.
C) The franchisee is responsible for developing all marketing materials.
D) The company has only recently become a franchise.
E) There are several other franchises with the same company in the area.

Answer: A

Diff: 2 Type: MC Page Ref: 86-87

Skill: Application

Objective: 4.4

67) Franchising accounts for about ________ percent of retail sales in Canada and ________ percent of GDP.

A) 10; 20
B) 20; 30
C) 40; 10
D) 60; 15
E) 80; 55

Answer: C

Diff: 3 Type: MC Page Ref: 86

Skill: Knowledge

Objective: 4.4

68) Olivia has found a viable business, a small furniture store, she is interested in purchasing. She has learned that the store is supplied by reliable vendors and has a steady stream of local and online buyers. What should be Olivias next step at this point?

A) Analyze the furniture stores past financial statements
B) Start negotiating a purchase price with the current owner
C) Approach a banking institution about financing her purchase
D) Consult a marketing agency about ways to reach more customers
E) Search for vendors that can provide similar products at lower costs

Answer: A

Diff: 2 Type: MC Page Ref: 85

Skill: Application

Objective: 4.4

69) Which of the following is a key contributing factor to the success of a small business?

A) Hard work, drive, and dedication
B) Overcapitalization
C) Strong control systems
D) Creativity
E) Insufficient capital

Answer: A

Diff: 1 Type: MC Page Ref: 87

Skill: Comprehension

Objective: 4.5

70) Which is the most important reason for the failure of small business?

A) Poor marketing
B) Managerial incompetence
C) Loss of interest in the business
D) Fraud
E) Poor production capabilities

Answer: B

Diff: 2 Type: MC Page Ref: 87

Skill: Comprehension

Objective: 4.5

71) A new business typically adopts one of four main organizational forms. They are

A) franchise, sole proprietorship, partnership, or corporation.
B) franchise, partnership, corporation, or co-operative.
C) sole proprietorship, franchise, corporation, or co-operative.
D) sole proprietorship, partnership, corporation, or co-operative.
E) debt, equity, venture capital, or gifted.

Answer: D

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

72) The features of a sole proprietorship include all the following except

A) a lot of government paperwork.
B) simple to form.
C) easy to dissolve.
D) limited resources.
E) unlimited liabilities.

Answer: A

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

73) Which of the following is not typical for a sole proprietorship?

A) Limited liability
B) Losing money at start-up
C) Lack of continuity
D) Easy to dissolve
E) Hard to borrow money

Answer: A

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

74) Sam Clark has a custom cheesecake business that he owns and operates out of his home. Sams ownership structure likely is

A) a franchise.
B) a limited partnership.
C) a partnership.
D) a corporation.
E) a sole proprietorship.

Answer: E

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

75) Shirley is opening a flower shop and has decided to operate as a sole proprietorship. Which of the following is not an advantage Shirley will have in operating her business?

A) Freedom
B) Simplicity of operation
C) Limited liability
D) Low start-up costs
E) Choice of location

Answer: C

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

76) Tax laws permit ________ to treat the sales revenues and operating expenses of the business as part of their personal finances.

A) sole proprietorships
B) joint ventures
C) privately-held corporations
D) either publicly-held or privately-traded corporations
E) publicly-held corporations

Answer: A

Diff: 1 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

77) Low start-up costs, simplicity in formation, and freedom are advantages in establishing a

A) corporation.
B) sole proprietorship.
C) partnership.
D) joint venture.
E) co-operative.

Answer: B

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

78) A major disadvantage of the sole proprietorship is the

A) ability to grow by adding talent.
B) high start-up costs.
C) unlimited liability.
D) lack of freedom in making business decisions.
E) difficulty in beginning business activities.

Answer: C

Diff: 1 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

79) A general partnership has advantages which are similar to a sole proprietorship, such as

A) easy to transfer ownership.
B) limiting owners liability.
C) being simple to organize.
D) providing for continuity.
E) being dependent upon resources of an individual.

Answer: C

Diff: 3 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

80) A limited partnership attempts to

A) avoid the problem of unlimited liability for the owners.
B) limit the number of partners who may purchase a share of ownership.
C) provide for continuity of operation upon the departure of one of the partners.
D) limit the number of partners who may vote at board meetings.
E) limit the geographical area of operation for a business firm.

Answer: A

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

81) Partnerships are generally more advantageous than sole proprietorships because

A) the talents of the partners can be pooled.
B) some businesses can only be formed as partnerships.
C) there are many types of partnerships.
D) partners are jointly and severally liable.
E) many people can be the president of the company.

Answer: A

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

82) Which of the following statements about partnerships is false?

A) A partner cannot sell their interest without the other partners consent.
B) The partnership terminates upon the death of a partner.
C) A partner cannot retire without the other partners consent.
D) General partnerships are limited to ten partners.
E) It is easier to borrow money than a sole proprietorship.

Answer: D

Diff: 3 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

83) If sole proprietor Tom decided to merge his business with that of Cindy, another sole proprietor, a ________ would result.

A) partnership
B) T-4A special corporation
C) publicly-traded corporation
D) dual proprietorship
E) co-operative

Answer: A

Diff: 1 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

84) Low start-up costs and simplicity of operations are among the main advantages of

A) a sole proprietorship.
B) selling shares.
C) incorporating.
D) a co-operative.
E) none of these.

Answer: A

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

85) Many professional organizations, such as law firms and accounting firms, are formed as

A) joint ventures.
B) partnerships.
C) public corporations.
D) private corporations.
E) sole proprietorships.

Answer: B

Diff: 1 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

86) The size of a partnership is

A) limited to a maximum of $100 million in annual sales.
B) unlimited.
C) limited to a maximum of 100 partners.
D) limited to a maximum of 1000 employees.
E) limited to a maximum of $10 million in annual sales.

Answer: B

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

87) Jeanne is not an active participant in Highline Food Company, but she has contributed a significant amount of capital as a partner to the business. Jeanne is known as a(n) ________ partner.

A) managing
B) general
C) limited
D) dormant
E) secret

Answer: C

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

88) There are two basic types of partners: ________ and ________.

A) dormant; active
B) key; secondary
C) secret; open
D) general; limited
E) primary; secondary

Answer: D

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

89) Paul invests $50 000 in a partnership with his sister to operate a computer sales outlet. Paul is not involved in the operation of the store and has limited liability through the written partnership agreement. What kind of partner is Paul?

A) Secret
B) Ostensible
C) Limited
D) Dormant
E) General

Answer: C

Diff: 1 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

90) Two architects are considering forming a partnership. Both want a partnership agreement. All of the following should be part of their agreement except

A) the formal reporting relationship between the two partners.
B) the amount of the individual investment.
C) how the company will be dissolved.
D) how the profits will be shared.
E) how new employees will be hired.

Answer: E

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

91) Ann and David want to form a partnership. They should consider all of the following except

A) possibility of disagreement.
B) unlimited liability.
C) ease of setting up a partnership.
D) the combined talents of both partners.
E) ease in transferring ownership.

Answer: E

Diff: 2 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

92) Disadvantages of the general partnership form of business organization include

A) limited liability.
B) ability to provide dividends to shareholders.
C) lack of continuity.
D) simplicity of establishment.
E) difficult to organize.

Answer: C

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

93) What is the most important advantage of general partnerships?

A) The unlimited liability of the partnership
B) The ability to grow with the addition of new talent and money
C) The ease of implementing an effective control system
D) The increased role of luck
E) The need for minority partners

Answer: B

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

94) What do both sole proprietorships and partnerships lack?

A) Trust
B) Legal standing
C) Continuity
D) Shared vision
E) Adaptable processes

Answer: C

Diff: 2 Type: MC Page Ref: 88

Skill: Knowledge

Objective: 4.6

95) In a partnership

A) partners are not liable for debts of other partners if there is no partnership agreement.
B) each partner pays only his or her share of the liability even if one partner runs out of money before that partners share is paid.
C) a partner is not responsible for debts if another partner created the liability through some action that violated the partnership agreement.
D) each partner is responsible for the debts even if the debt was the result of the actions of only one partner.
E) each partner is responsible only for the debts he or she incurred.

Answer: D

Diff: 3 Type: MC Page Ref: 88

Skill: Comprehension

Objective: 4.6

96) Computers-B-Us is a new company. Its owners all have no personal liability for any debts of the company. All five of its owners invested the same amount and will share equally in the profits. The structure of Computers-B-Us is most likely a

A) private corporation.
B) co-operative.
C) limited partnership.
D) general partnership.
E) sole proprietorship.

Answer: A

Diff: 3 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

97) What is the fundamental difference between a sole proprietorship and a corporation?

A) A corporation is larger than a sole proprietorship.
B) A corporation is a legal entity that is separate from its owners, while in a sole proprietorship, there is no such distinction.
C) A sole proprietor has unlimited liability, while investors in a corporation have limited liability.
D) A corporation is more bureaucratic than a sole proprietorship.
E) There isnt really a fundamental difference between a sole proprietorship and a corporation.

Answer: B

Diff: 3 Type: MC Page Ref: 89

Skill: Comprehension

Objective: 4.6

98) What was the largest corporation in Canada in 2014, as measured by sales revenue?

A) Imperial Oil
B) Manulife Financial Corp.
C) Bank of Nova Scotia
D) General Motors Canada
E) Suncor Energy

Answer: E

Diff: 3 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

99) Which of the following is a private corporation?

A) General Motors Canada
B) Suncor Energy
C) Cirque du Soleil
D) Manulife Financial Corp.
E) Bank of Nova Scotia

Answer: C

Diff: 3 Type: MC Page Ref: 90

Skill: Knowledge

Objective: 4.6

100) A public corporation is

A) one that must do business with the general public.
B) chartered by the federal government.
C) one whose stock is available for sale to the general public.
D) one that cannot keep secrets from its competitors.
E) one whose shares are for sale at public auctions.

Answer: C

Diff: 2 Type: MC Page Ref: 89

Skill: Comprehension

Objective: 4.6

101) ________ is the governing body of a corporation.

A) The board of directors
B) The majority shareholders committee
C) The audit committee
D) The CEO
E) A shareholders board

Answer: A

Diff: 2 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

102) The two most widely used methods to form a corporation include

A) traditional or contemporary incorporation.
B) limited or unlimited incorporation.
C) private or public incorporation.
D) inside or outside incorporation.
E) federal or provincial incorporation.

Answer: E

Diff: 2 Type: MC Page Ref: 90

Skill: Knowledge

Objective: 4.6

103) Bill is starting up a new business. In order to raise the capital needed for the business, Bill has sold shares of his company to a few close relatives. This type of structure is known as a

A) sole proprietorship.
B) private corporation.
C) macroenterprise.
D) public enterprise.
E) public corporation.

Answer: B

Diff: 1 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

104) An organization designed to avoid paying corporate tax by distributing all or most of their earnings to their shareholders is

A) an income trust.
B) a shareholders co-operative.
C) a public company.
D) a limited partnership.
E) a private corporation.

Answer: A

Diff: 2 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

105) An outside director is

A) a person who is not an employee of the company.
B) a person from the employee group outside the upper level ranks.
C) a person selected by the CEO.
D) a person who is a high ranking company official.
E) a person from the audit committee.

Answer: A

Diff: 2 Type: MC Page Ref: 89

Skill: Comprehension

Objective: 4.6

106) What is the difference between a public and private corporation?

A) Public corporations issue shares, whereas private corporations do not.
B) Public corporations are owned by a government, whereas private corporations are owned by private individuals.
C) Public corporations are always large, whereas private corporations are not allowed by law to be large.
D) Public corporations have articles of incorporation, whereas private corporations do not.
E) Public corporations issue shares that are widely held, whereas private corporations issue shares that are held by only a few people.

Answer: E

Diff: 2 Type: MC Page Ref: 89-90

Skill: Comprehension

Objective: 4.6

107) Shareholders are ________ of a company and profits are distributed among shareholders in the form of ________.

A) owners; proxies
B) owners; products
C) managers; proxies
D) owners; dividends
E) managers; profit sharing

Answer: D

Diff: 2 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

108) Start-up costs and complexities are among the main disadvantages of

A) starting up a partnership.
B) incorporating.
C) starting up a sole proprietorship.
D) selling shares.
E) none of these.

Answer: B

Diff: 2 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

109) For the first time, Liz has decided to sell shares of her company to the public in order to raise some capital to build a new factory. Liz is launching a(n)

A) initial public offering.
B) an extended corporation.
C) blended corporation.
D) private corporation.
E) income tax trust.

Answer: A

Diff: 2 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

110) ________ is defined as an artificial being, invisible, intangible, and existing only in contemplation of the law.

A) A corporation
B) A co-operative
C) A partnership
D) A business owner
E) A sole proprietorship

Answer: A

Diff: 2 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

111) Which type of business is legally considered a separate entity from its owners and is liable for its own debts?

A) Sole proprietorship
B) Corporation
C) Limited partnership
D) Co-operative
E) General partnership

Answer: B

Diff: 2 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

112) A share of ownership in a corporation is referred to as

A) a partnership.
B) stock.
C) a principle.
D) a directorship.
E) debt.

Answer: B

Diff: 1 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

113) Due to his hard work and notable contributions as an employee of KB Electronics, Nori has just been elected to the board of directors of the company. He will now be expected to fulfill his obligations as both an employee and director. Nori is a(n)

A) outside director.
B) special representative.
C) regular seat holder.
D) inside director.
E) corporate official.

Answer: D

Diff: 2 Type: MC Page Ref: 89

Skill: Comprehension

Objective: 4.6

114) Suzy is considering incorporating her financial consulting business. Of the items listed below, which one would not be a problem if she incorporates?

A) Heavy regulation
B) Double taxation
C) Complex legal requirements
D) Unlimited liability
E) High costs of incorporation

Answer: D

Diff: 2 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

115) In the double taxation endured by some businesses, ________ is the first taxation and ________ is the second taxation.

A) tax on corporate profits; value-added tax
B) tax on dividends; tax on corporate profits
C) tax on corporate profits; tax on dividends
D) property tax; income tax
E) social security tax; income tax

Answer: C

Diff: 3 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

116) What is double taxation in the context of a corporation?

A) Consumers are taxed twice, once when they purchase products and once when they receive dividend cheques.
B) The federal government taxes corporate earnings at twice the rate of earnings of sole proprietors.
C) Gross earnings are taxed, then net earnings.
D) A corporation must pay income taxes on its profits, and then shareholders must also pay personal income taxes on the dividends they receive from the corporation.
E) None of these explain double taxation.

Answer: D

Diff: 3 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

117) Jonathan is upset, claiming that he is a victim of double taxation. What form of business is he involved in?

A) Unlimited liability
B) Partnership
C) Corporation
D) Big business venture
E) Small corporate venture

Answer: C

Diff: 1 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6

118) The person or people responsible for the firms overall performance is/are

A) the directors.
B) the CEO.
C) the COO.
D) the CFO.
E) all employees.

Answer: B

Diff: 1 Type: MC Page Ref: 89

Skill: Knowledge

Objective: 4.6

119) Most new corporations start out as ________ corporations and then move to ________ corporations as they grow.

A) unlimited; limited
B) limited; unlimited
C) general, active
D) public; private
E) private; public

Answer: E

Diff: 2 Type: MC Page Ref: 90

Skill: Knowledge

Objective: 4.6

120) Gloria wants to turn her sole proprietorship into a business corporation. Among the things that she must consider are

A) sole proprietorships must be made into partnerships before they can be made into corporations.
B) there is a threat of a hostile takeover if she has a private corporation.
C) double taxation that occurs with corporations.
D) the cost of dissolving her sole proprietorship will be high.
E) she has to decide whether or not she will issue shares when the company becomes a corporation.

Answer: C

Diff: 2 Type: MC Page Ref: 90

Skill: Comprehension

Objective: 4.6