Chapter.7 Starting a New Business Full Test Bank 7th Edition

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

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

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

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

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

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

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

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

b. a capital-intensive business

c. a service-intensive business

d. an asset-intensive business

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

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

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

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

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

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

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

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.

a. two

b. five

c. seven

d. ten

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

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

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

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

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

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

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

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

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

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

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?

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?

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

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

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

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

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

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

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

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

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

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

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?

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

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

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 ______.

a. the competition

b. start-up costs

c. its market

d. assets

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

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)

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

d. inventory capacity

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

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

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

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

44. Most states collect sales taxes on ______ sold.

a. everything

b. tangible property

c. intangible property

d. goodwill property

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

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

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

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

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

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

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

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

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

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

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

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

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

b. capital intensive

c. trade intensive

d. customer intensive

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

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

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

b. lower prices

c. established customer base

d. his education

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

14. As a product progresses through the product life cycle, the window of opportunity for the product concept widens.

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.

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.

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.

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.

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

19. Turning a hobby into a business is a viable route to self-employment.

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.

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.

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.

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.

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.

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.

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.

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.

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

28. When a business begins operations, advance payments of estimated federal and possibly state income taxes must be paid.

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.

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.

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.

KEY: Learning Objective: 7.1: Discuss the advantages and disadvantages of starting a business from scratch.

REF: Cognitive Domain: Comprehension

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.

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.

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.

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

5. Describe three ways people develop ideas for new businesses.

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.

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.

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