Business Essentials Canadian 8th Edition Ebert Test Bank
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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.
1. A) 3
2. B) 5
3. C) 16
4. D) 22
5. 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?
1.
A) 25
2.
B) 100
3.
C) 250
4.
D) 380
5.
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
1.
A) speculators.
2.
B) franchisees.
3.
C) entrepreneurs.
4.
D) intrapreneurs.
5.
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?
1. A) To seek independence and be their own boss
2. B) To earn a comfortable living for a period
of time
3. C) To grow and expand a current business
4. D) To meet community or social obligations
5. 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
1. A) one that has been in business for 5 years
or less.
2. B) one that has not yet opened for business.
3. C) one with less than 10 years’ experience.
4. D) one that has become operational within the
previous 12 months.
5. 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?
1. A) The former are women and the latter are
men.
2. B) The former are older than the latter.
3. C) The former work within an existing business
while the latter start their own business.
4. D) The former earn less money than the latter.
5. 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.
1. A) 25
2. B) 50
3. C) 10
4. D) 500
5. E) 100
Answer: E
Diff: 2
Type: MC Page Ref: 75
Skill: Knowledge
Objective: 4.1
8) What percentage of
Canada’s GDP is contributed by small businesses?
1. A) 7 percent
2. B) 13 percent
3. C) 19 percent
4. D) 30 percent
5. 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?
1. A) Various measures might be used to define a
small business, including the number of people the business employs, the
company’s sales revenue, the size of the investment required, or the type of
ownership structure the business has.
2. 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.”
3. C) To be included in the Business Register, a business must have at least five paid
employees.
4. 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.
5. 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.”
1. A) 1.2 million; 1.2 million
2. B) 5 million; 500 000
3. C) 2.7 million; 2.2 million
4. D) 725 000; 500 000
5. 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.
1. A) 1000; 500
2. B) 500; 1000
3. C) 100; 50
4. D) 500; 250
5. 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 ________.
1. A) Australia, Japan, and Singapore; 25th
2. B) the United States, Germany, and Japan; 8th
3. C) the United States, Ireland, and Germany;
11th
4. D) Hong Kong, Singapore, and New Zealand; 6th
5. E) China, Japan, and South Vietnam; 37th
Answer: D
Diff: 3
Type: MC Page Ref: 76
Skill: Knowledge
Objective: 4.1
13) The Heritage
Foundation’s “index of economic freedom” measures
1. A) how well command economies are performing
compared to market economies.
2. B) the extent to which entrepreneurs have
freedom to pursue new business opportunities.
3. C) how well entrepreneurs are performing in
advanced industrialized countries compared to developing economies.
4. D) how much profit entrepreneurs are making in
command economies compared to market economies.
5. 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 company’s website was the result of ________ in a large firm.
1. A) product refinement
2. B) intrapreneurship
3. C) entrepreneurship
4. D) starting a business from scratch
5. 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
1. A) crown corporations.
2. B) split sector.
3. C) legislated corporations.
4. D) public sector.
5. 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
1. A) other services.
2. B) construction.
3. C) accommodation and food.
4. D) manufacturing.
5. 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?
1. A) 98
2. B) 58
3. C) 88
4. D) 78
5. 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.
1. A) 8
2. B) 15
3. C) 28
4. D) 43
5. 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.
1. A) About one-fifth; 6
2. B) about one-quarter; 18
3. C) about one-third; 18
4. D) more than one-half; 12
5. 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?
1. A) The entrepreneur, the opportunity, and the
marketing plan
2. B) The marketing plan, the production plan,
and the finance plan
3. C) The product (or service) plan, the
entrepreneur, and luck
4. D) The entrepreneur, the opportunity, and the
resources
5. 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?
1. A) Brainstorming
2. B) Family
3. C) Work experiences
4. D) Children
5. 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?
1. A) The most important source of ideas for a
new venture arise as the result of a conscious search for new venture ideas.
2. B) About half of all new venture ideas come
from insights gained or skills learned at a previous job.
3. C) Personal hobbies or interests are the most
important source of ideas for a new venture.
4. D) Suggestions from family members are an
important (but not the most important) factor in coming up with new venture
ideas.
5. 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?
1. A) Experience in industry before starting a
new business
2. B) Parents
3. C) Teachers
4. D) Bankers
5. 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
1. A) is the idea marketable?
2. B) does this idea have a high entrance cost?
3. C) does this idea create or add value for the
customer?
4. D) does the idea provide a sustainable
competitive advantage?
5. 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?
1. A) Determining whether or not the new idea
adds value for customers is not essential at this early stage of the process.
2. B) It is not possible to determine at this
early stage whether a new idea will actually give a company a sustained
competitive advantage.
3. C) It is important to determine if sales will
lead to profits.
4. D) If the idea is not expected to result in
making a profit for a number of years, exit costs are low.
5. 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?
1. A) What interest rate will be charged for
financing the purchase of capital equipment?
2. B) What depreciation procedures will be used?
3. C) What kind of computers should I purchase?
4. D) Where will my business be located?
5. 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
1. A) what is my competitive advantage?
2. B) how much will the customer buy?
3. C) what legal form should the business take?
4. D) what value is created or added to for the
customer?
5. 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.
1. A) buyer; seller; a product; a service
2. B) retailer; outlet owner; food; a service
3. C) manufacturer; dealer; a product; a service
4. D) manufacturer; seller; a service; a product
5. 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
1. A) a cash budget.
2. B) an estimate of start-up costs.
3. C) an income statement.
4. D) a listing of potential customers.
5. 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.
1. A) bank loan application
2. B) business plan
3. C) tax application
4. D) partnership agreement
5. 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?
1. 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.
2. B) If market conditions are changing rapidly,
the benefits gained from extensive research and planning will diminish quickly.
3. C) If the product is highly innovative,
research is particularly important.
4. D) Planning should be completed before action
is taken.
5. 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
1. A) doing more with less.
2. B) selling shares.
3. C) designing new products.
4. D) preparing a business plan.
5. 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
1. A) financed assets.
2. B) tangible assets.
3. C) fixed assets.
4. D) collateral.
5. 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
1. A) private loaners.
2. B) traditional lenders.
3. C) pseudo loaners.
4. D) off-the-books financers.
5. 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?
1. A) Love money is a form of debt financing.
2. B) Suppliers typically provide long-term
financing.
3. C) Debt financing refers to money invested by
the owner in the company.
4. D) Borrowing money reduces the potential for
higher returns when a business is performing well.
5. 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
1. A) acquiring resources such as people and
equipment.
2. B) doing more with less.
3. C) purchasing as many resources as possible.
4. D) using other people’s resources.
5. E) borrowing materials.
Answer: C
Diff: 1
Type: MC Page Ref: 82
Skill: Knowledge
Objective: 4.3
37) Venture
capitalists
1. A) require collateral for all transactions.
2. B) are risk averse lenders.
3. C) invest funds from professionally managed
pools of investor money.
4. D) offer loans with a maximum 90-day payback
period.
5. 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
1. A) family investment.
2. B) lottery winnings.
3. C) banks.
4. D) credit unions.
5. 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?
1. A) Love money is the most popular form of debt
financing.
2. B) Suppliers typically provide long-term
financing.
3. C) Debt financing refers to money invested by
the owner in the company.
4. D) Borrowing money reduces the potential for
higher returns when a business is performing well.
5. 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?
1. 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.
2. B) The most common source of debt financing is
venture capitalists.
3. C) Choosing between debt and equity financing
involves trade-offs with regard to immediate vs. long-term profitability.
4. D) Most new venture founders prefer equity
financing because they are reluctant to give up any control to outsiders.
5. 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?
1. A) Venture capital firm
2. B) Foreign investors
3. C) Stockbroker syndicate
4. D) Silent domestic partner
5. E) Banks
Answer: A
Diff: 2
Type: MC Page Ref: 82
Skill: Knowledge
Objective: 4.3
42) Trade credit is
1. A) the selling of bonds or debentures.
2. B) reinvested in the enterprise.
3. C) paid to the owners in the form of
dividends.
4. D) derived from funds generated from the operation
of the business.
5. 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
________.
1. A) family and friends; venture capitalists
2. B) private lenders; family and friends
3. C) private lenders; trade credit
4. D) venture capitalists; private lenders
5. 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.
1. A) preliminary
2. B) growth
3. C) start-up
4. D) maturity
5. 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
1. A) banks.
2. B) personal savings.
3. C) love money.
4. D) private investors.
5. 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?
1. A) It refers to business (but not personal)
assets that a borrower uses to secure a loan or other credit.
2. B) It consists of tangible assets like
buildings as well as intangible assets like goodwill.
3. C) Collateral can be seized by the lender if
the loan is not repaid according to specified terms.
4. D) It refers to personal (but not business)
assets that a borrower uses to secure a loan or other credit.
5. 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?
1. A) Love money is a form of debt financing.
2. B) Borrowing money reduces the potential for
higher returns when a business is performing well.
3. C) Debt financing refers to money invested by
the owner in the company.
4. D) Banks are typically risk averse.
5. 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.
1. A) resource-entrepreneur
2. B) personal-entrepreneur
3. C) entrepreneur-opportunity
4. D) opportunity-resource
5. 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?
1. A) No problems as a result of the prior
owner’s errors
2. B) Odds are better to succeed
3. C) Relationship with suppliers already
established
4. D) Needs and desires of customers known
5. 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?
1. A) Having few employees
2. B) Inability to franchise
3. C) Having competition
4. D) Coming up with new ideas
5. E) The risk of failure
Answer: E
Diff: 1
Type: MC Page Ref: 85
Skill: Comprehension
Objective: 4.4
51) Harold’s 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?
1. A) Untrained and uneducated family members as
personnel
2. B) Failure to respond to changing market
conditions
3. C) Choosing an appropriate successor
4. D) Consistent under-financing
5. 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?
1. A) Highly trained individuals
2. B) Valuable community relationships
3. C) Personal sacrifices leading to financial
advantage
4. D) High employee loyalty
5. 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
1. A) assuring economic security for the retiring
leader and spouse.
2. B) training the successor.
3. C) benefits for the successor.
4. D) timing the succession.
5. 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
1. A) the location of the business.
2. B) legal form of the business.
3. C) difficulty in determining an appropriate
price for the business.
4. D) incomplete knowledge of the state of the
business.
5. 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
1. A) buy an existing business.
2. B) start from scratch.
3. C) buy out a partner.
4. D) win the business in a draw.
5. 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
1. A) a small business.
2. B) a macroenterprise.
3. C) an enterprise.
4. D) a microenterprise.
5. 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?
1. A) Improved chances of success
2. B) Access to big business management skills
3. C) Don’t have to build a business step by step
4. D) Incentive of owning your own business
5. 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?
1. A) Start-up costs
2. B) Operational guidelines
3. C) Difficulty obtaining loans
4. D) Double taxation
5. 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?
1. A) Financing help
2. B) Guarantee of success
3. C) Marketing strategy
4. D) Training for employees and managers
5. 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?
1. A) Guaranteed success
2. B) Economies of scale in buying
3. C) Promotion savings
4. D) Recognition
5. 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
1. A) more revenue.
2. B) more financing.
3. C) more involvement in the details of local
operations.
4. D) advertising money is spent more
efficiently.
5. 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
________.
1. A) franchisee; franchiser
2. B) franchiser; parent company
3. C) franchiser; franchisee
4. D) pigeon; shyster
5. 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
1. A) emergency needs.
2. B) operational expenses.
3. C) the franchise sales price.
4. D) training expenses.
5. 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?
1. A) High failure rates
2. B) Sacrifice of independence
3. C) Difficult to terminate
4. D) On-going payments to the parent company
5. 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?
1. A) Freed from detail of local operations
2. B) Recognition
3. C) Rapid growth for the franchise
4. D) Low entry cost
5. 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?
1. A) The franchiser requires $3000 in start-up
costs and a 5 percent monthly royalty fee.
2. B) The franchiser tightly controls and
monitors the service protocol.
3. C) The franchisee is responsible for
developing all marketing materials.
4. D) The company has only recently become a
franchise.
5. 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.
1. A) 10; 20
2. B) 20; 30
3. C) 40; 10
4. D) 60; 15
5. 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 Olivia’s next step at this
point?
1. A) Analyze the furniture store’s past
financial statements
2. B) Start negotiating a purchase price with the
current owner
3. C) Approach a banking institution about
financing her purchase
4. D) Consult a marketing agency about ways to
reach more customers
5. 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?
1. A) Hard work, drive, and dedication
2. B) Overcapitalization
3. C) Strong control systems
4. D) Creativity
5. 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?
1. A) Poor marketing
2. B) Managerial incompetence
3. C) Loss of interest in the business
4. D) Fraud
5. 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
1. A) franchise, sole proprietorship,
partnership, or corporation.
2. B) franchise, partnership, corporation, or
co-operative.
3. C) sole proprietorship, franchise,
corporation, or co-operative.
4. D) sole proprietorship, partnership, corporation,
or co-operative.
5. 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
1. A) a lot of government paperwork.
2. B) simple to form.
3. C) easy to dissolve.
4. D) limited resources.
5. 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?
1. A) Limited liability
2. B) Losing money at start-up
3. C) Lack of continuity
4. D) Easy to dissolve
5. 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. Sam’s
ownership structure likely is
1. A) a franchise.
2. B) a limited partnership.
3. C) a partnership.
4. D) a corporation.
5. 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?
1. A) Freedom
2. B) Simplicity of operation
3. C) Limited liability
4. D) Low start-up costs
5. 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.
1. A) sole proprietorships
2. B) joint ventures
3. C) privately-held corporations
4. D) either publicly-held or privately-traded
corporations
5. 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
1. A) corporation.
2. B) sole proprietorship.
3. C) partnership.
4. D) joint venture.
5. 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
1. A) ability to grow by adding talent.
2. B) high start-up costs.
3. C) unlimited liability.
4. D) lack of freedom in making business
decisions.
5. 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
1. A) easy to transfer ownership.
2. B) limiting owner’s liability.
3. C) being simple to organize.
4. D) providing for continuity.
5. 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
1. A) avoid the problem of unlimited liability
for the owners.
2. B) limit the number of partners who may
purchase a share of ownership.
3. C) provide for continuity of operation upon
the departure of one of the partners.
4. D) limit the number of partners who may vote
at board meetings.
5. 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
1. A) the talents of the partners can be pooled.
2. B) some businesses can only be formed as
partnerships.
3. C) there are many types of partnerships.
4. D) partners are jointly and severally liable.
5. 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?
1. A) A partner cannot sell their interest
without the other partners’ consent.
2. B) The partnership terminates upon the death
of a partner.
3. C) A partner cannot retire without the other
partners’ consent.
4. D) General partnerships are limited to ten
partners.
5. 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.
1. A) partnership
2. B) T-4A special corporation
3. C) publicly-traded corporation
4. D) dual proprietorship
5. 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
1. A) a sole proprietorship.
2. B) selling shares.
3. C) incorporating.
4. D) a co-operative.
5. 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
1. A) joint ventures.
2. B) partnerships.
3. C) public corporations.
4. D) private corporations.
5. E) sole proprietorships.
Answer: B
Diff: 1
Type: MC Page Ref: 88
Skill: Knowledge
Objective: 4.6
86) The size of a
partnership is
1. A) limited to a maximum of $100 million in
annual sales.
2. B) unlimited.
3. C) limited to a maximum of 100 partners.
4. D) limited to a maximum of 1000 employees.
5. 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.
1. A) managing
2. B) general
3. C) limited
4. D) dormant
5. 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 ________.
1. A) dormant; active
2. B) key; secondary
3. C) secret; open
4. D) general; limited
5. 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?
1. A) Secret
2. B) Ostensible
3. C) Limited
4. D) Dormant
5. 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
1. A) the formal reporting relationship between
the two partners.
2. B) the amount of the individual investment.
3. C) how the company will be dissolved.
4. D) how the profits will be shared.
5. 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
1. A) possibility of disagreement.
2. B) unlimited liability.
3. C) ease of setting up a partnership.
4. D) the combined talents of both partners.
5. 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
1. A) limited liability.
2. B) ability to provide dividends to
shareholders.
3. C) lack of continuity.
4. D) simplicity of establishment.
5. 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?
1. A) The unlimited liability of the partnership
2. B) The ability to grow with the addition of
new talent and money
3. C) The ease of implementing an effective
control system
4. D) The increased role of luck
5. 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?
1. A) Trust
2. B) Legal standing
3. C) Continuity
4. D) Shared vision
5. E) Adaptable processes
Answer: C
Diff: 2
Type: MC Page Ref: 88
Skill: Knowledge
Objective: 4.6
95) In a partnership
1. A) partners are not liable for debts of other
partners if there is no partnership agreement.
2. B) each partner pays only his or her share of
the liability even if one partner runs out of money before that partner’s share
is paid.
3. C) a partner is not responsible for debts if
another partner created the liability through some action that violated the
partnership agreement.
4. D) each partner is responsible for the debts
even if the debt was the result of the actions of only one partner.
5. 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
1. A) private corporation.
2. B) co-operative.
3. C) limited partnership.
4. D) general partnership.
5. 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?
1. A) A corporation is larger than a sole
proprietorship.
2. B) A corporation is a legal entity that is
separate from its owners, while in a sole proprietorship, there is no such
distinction.
3. C) A sole proprietor has unlimited liability,
while investors in a corporation have limited liability.
4. D) A corporation is more bureaucratic than a
sole proprietorship.
5. E) There isn’t 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?
1. A) Imperial Oil
2. B) Manulife Financial Corp.
3. C) Bank of Nova Scotia
4. D) General Motors Canada
5. 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?
1. A) General Motors Canada
2. B) Suncor Energy
3. C) Cirque du Soleil
4. D) Manulife Financial Corp.
5. E) Bank of Nova Scotia
Answer: C
Diff: 3
Type: MC Page Ref: 90
Skill: Knowledge
Objective: 4.6
100) A public
corporation is
1. A) one that must do business with the general
public.
2. B) chartered by the federal government.
3. C) one whose stock is available for sale to
the general public.
4. D) one that cannot keep secrets from its
competitors.
5. 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.
1. A) The board of directors
2. B) The majority shareholders committee
3. C) The audit committee
4. D) The CEO
5. 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
1. A) traditional or contemporary incorporation.
2. B) limited or unlimited incorporation.
3. C) private or public incorporation.
4. D) inside or outside incorporation.
5. 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
1. A) sole proprietorship.
2. B) private corporation.
3. C) macroenterprise.
4. D) public enterprise.
5. 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
1. A) an income trust.
2. B) a shareholders co-operative.
3. C) a public company.
4. D) a limited partnership.
5. E) a private corporation.
Answer: A
Diff: 2
Type: MC Page Ref: 90
Skill:
Comprehension
Objective: 4.6
105) An outside
director is
1. A) a person who is not an employee of the
company.
2. B) a person from the employee group outside
the upper level ranks.
3. C) a person selected by the CEO.
4. D) a person who is a high ranking company
official.
5. 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?
1. A) Public corporations issue shares, whereas
private corporations do not.
2. B) Public corporations are owned by a
government, whereas private corporations are owned by private individuals.
3. C) Public corporations are always large,
whereas private corporations are not allowed by law to be large.
4. D) Public corporations have articles of
incorporation, whereas private corporations do not.
5. 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 ________.
1. A) owners; proxies
2. B) owners; products
3. C) managers; proxies
4. D) owners; dividends
5. 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
1. A) starting up a partnership.
2. B) incorporating.
3. C) starting up a sole proprietorship.
4. D) selling shares.
5. 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)
1. A) initial public offering.
2. B) an extended corporation.
3. C) blended corporation.
4. D) private corporation.
5. 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.”
1. A) A corporation
2. B) A co-operative
3. C) A partnership
4. D) A business owner
5. 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?
1. A) Sole proprietorship
2. B) Corporation
3. C) Limited partnership
4. D) Co-operative
5. 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
1. A) a partnership.
2. B) stock.
3. C) a principle.
4. D) a directorship.
5. 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)
1. A) outside director.
2. B) special representative.
3. C) regular seat holder.
4. D) inside director.
5. 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?
1. A) Heavy regulation
2. B) Double taxation
3. C) Complex legal requirements
4. D) Unlimited liability
5. 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.
1. A) tax on corporate profits; value-added tax
2. B) tax on dividends; tax on corporate profits
3. C) tax on corporate profits; tax on dividends
4. D) property tax; income tax
5. 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?
1. A) Consumers are taxed twice, once when they
purchase products and once when they receive dividend cheques.
2. B) The federal government taxes corporate
earnings at twice the rate of earnings of sole proprietors.
3. C) Gross earnings are taxed, then net earnings.
4. 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.
5. 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?
1. A) Unlimited liability
2. B) Partnership
3. C) Corporation
4. D) Big business venture
5. 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 firm’s overall performance is/are
1. A) the directors.
2. B) the CEO.
3. C) the COO.
4. D) the CFO.
5. 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.
1. A) unlimited; limited
2. B) limited; unlimited
3. C) general, active
4. D) public; private
5. 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
1. A) sole proprietorships must be made into
partnerships before they can be made into corporations.
2. B) there is a threat of a hostile takeover if
she has a private corporation.
3. C) double taxation that occurs with
corporations.
4. D) the cost of dissolving her sole proprietorship
will be high.
5. 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
121) Who are the
owners of a corporation?
1. A) The board of directors
2. B) The financial officers
3. C) The stockholders
4. D) The top managers
5. E) The creditors
Answer: C
Diff: 2
Type: MC Page Ref: 89
Skill:
Comprehension
Objective: 4.6
122) Which of the
following is the main disadvantage of a co-operative?
1. A) High prices
2. B) Each member only gets one vote
3. C) High tax rates
4. D) Low surplus distribution rates
5. E) Difficult to attract equity investment
Answer: E
Diff: 2
Type: MC Page Ref: 90
Skill:
Comprehension
Objective: 4.6
123) A ________ is an
incorporated form of business that is organized, owned, and democratically
controlled by the people who use its products and services.
1. A) partnership
2. B) proprietorship
3. C) co-operative
4. D) corporation
5. E) preferred share
Answer: C
Diff: 2
Type: MC Page Ref: 90
Skill: Knowledge
Objective: 4.6
124) How is a
co-operative different from a corporation?
1. A) A co-operative has no shareholders.
2. B) A co-operate is smaller than a corporation.
3. C) In a co-operative, each person has only one
vote no matter how many shares they own.
4. D) Double taxation affects co-operatives more
negatively than corporations.
5. E) A co-operative is not incorporated.
Answer: C
Diff: 2
Type: MC Page Ref: 90
Skill: Comprehension
Objective: 4.6
125) Which of the
following is correct with regard to co-operatives?
1. A) Co-operatives are not allowed to deduct
patronage refunds to members out of before-tax income.
2. B) Members have an incentive to invest in
equity capital of the co-operative.
3. C) Voting and financial control of the
co-operative is typically held by a few wealthy individuals.
4. D) Double taxation affects co-operatives more
negatively than corporations.
5. E) The democratic voting arrangements and
dividends based purely on patronage discourage some entrepreneurs from forming
or joining a co-operative.
Answer: E
Diff: 2
Type: MC Page Ref: 90
Skill:
Comprehension
Objective: 4.6
126) The purpose of a
co-operative is
1. A) as a benevolent association designed to
help out its members in times of need.
2. B) as an association only for farmers.
3. C) to benefit its owners in the form of
reduced prices and/or distribution of surplus at year end.
4. D) to remain small so that they can help all
their members on an individual basis.
5. E) to buy fertilizer at reduced prices because
of volume buying on the part of its members.
Answer: C
Diff: 1
Type: MC Page Ref: 90
Skill:
Comprehension
Objective: 4.6
127) Voting rights in
a co-operative are
1. A) not restricted just to members.
2. B) required before one can buy anything from a
co-operative.
3. C) the same as those found in a corporation,
that is, the more one owns or contributes the more votes one has.
4. D) nonexistent; there are no votes taken in
the running of a co-operative.
5. E) one vote per member regardless of the
amount owned or contributed.
Answer: E
Diff: 1
Type: MC Page Ref: 90
Skill:
Comprehension
Objective: 4.6
4.2
Critical Thinking Questions
1) An entrepreneur,
Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores
under the brand name “Redenda Pizza.” The name comes from combining the first
names of the entrepreneur’s grandparents. Christina wants to have a competitive
advantage by offering innovative and distinct specialty pizzas and by offering
the freshest ingredients. However, she is concerned that without proper
planning, her venture will not be successful.
Christina is trying to
identify potential problems in order to avoid them or at least be better positioned
to react if they cannot be avoided. In doing so, Christina should account for
all of the following possibilities except
1. A) the possibility that years in the future
scientists may give a new communicable disease a name that sounds similar to
“Redenda.”
2. B) the possibility that a significant number
of her potential customers could be allergic to one or more of her ingredients.
3. C) the possibility that seasonal variations in
the availability of ingredients could affect the price of those ingredients.
4. D) the possibility that advertising “fresh”
ingredients may prevent Redenda Pizza from using less-expensive ingredients.
5. E) the possibility that many customers are
reluctant to try new pizza recipes.
Answer: A
Diff: 3
Type: MC
Skill: Analysis
2) An entrepreneur,
Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores
under the brand name “Redenda Pizza.” The name comes from combining the first
names of the entrepreneur’s grandparents. Christina wants to have a competitive
advantage by offering innovative and distinct specialty pizzas and by offering
the freshest ingredients. However, she is concerned that without proper
planning, her venture will not be successful.
Answers to which of
the following questions would be least relevant to determining whether Christina has located a
good opportunity in starting Redenda Pizza?
1. A) Are there other pizza restaurants in the
immediate vicinity of the planned location?
2. B) Is the business of other pizza restaurants
in the city growing?
3. C) Does the planned location of the restaurant
have competitive rent?
4. D) Will Redenda Pizza offer unique ingredients
in its food offerings?
5. E) Would Christina bring unique talents and
ideas to a restaurant business?
Answer: C
Diff: 3
Type: MC
Skill: Analysis
3) An entrepreneur,
Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores
under the brand name “Redenda Pizza.” The name comes from combining the first
names of the entrepreneur’s grandparents. Christina wants to have a competitive
advantage by offering innovative and distinct specialty pizzas and by offering
the freshest ingredients. However, she is concerned that without proper
planning, her venture will not be successful.
Which of the
following, if true, would strengthen the case that Christina has a good
opportunity in opening a new pizza restaurant?
1. A) There are many existing pizza restaurants
in Christina’s city.
2. B) The pizza business in Christina’s city has
remained largely unchanged for many years.
3. C) Restaurant consumers in Christina’s city
mostly frequent Mexican restaurants.
4. D) Pizza restaurants require several
experienced employees to be successful.
5. E) Pizza restaurants can be found in almost
any town in the United States.
Answer: B
Diff: 3
Type: MC
Skill: Analysis
4) An entrepreneur,
Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores
under the brand name “Redenda Pizza.” The name comes from combining the first
names of the entrepreneur’s grandparents. Christina wants to have a competitive
advantage by offering innovative and distinct specialty pizzas and by offering
the freshest ingredients. However, she is concerned that without proper
planning, her venture will not be successful.
Which of the
following, if true, would not strengthen the case that Christina has personal
characteristics necessary for her new business to succeed?
1. A) She is willing to take risks.
2. B) She is motivated.
3. C) She works well with others.
4. D) She is a “big picture” thinker.
5. E) She follows directions carefully.
Answer: E
Diff: 3
Type: MC
Skill: Analysis
5) An entrepreneur,
Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores
under the brand name “Redenda Pizza.” The name comes from combining the first
names of the entrepreneur’s grandparents. Christina wants to have a competitive
advantage by offering innovative and distinct specialty pizzas and by offering
the freshest ingredients. However, she is concerned that without proper
planning, her venture will not be successful.
Which of the
following best explains why
flexibility is an important quality that Christina needs for success?
1. A) It takes a certain amount of money to start
a business.
2. B) It often helps to have a business partner
in a new business.
3. C) Starting a new business requires a great
deal of planning.
4. D) Starting and running a new business
involves many unpredictable factors.
5. E) An entrepreneur must be extremely competent
in business skills.
Answer: D
Diff: 3
Type: MC
Skill: Analysis
6) Short and Shearer
are two friends who want to begin an entrepreneurship as business partners.
They need to decide whether to start up a new business or to buy an existing
business. To do this, Short and Shearer need to weigh the pros and cons of each
in order to see what the best strategy for them would be.
Which of the
following, if true, would strengthen the case for Short and Shearer buying an
existing business?
1. A) Short and Shearer have a lot of ideas as to
the kind of business they would like to own.
2. B) An existing business would have an existing
customer base that Short and Shearer would inherit.
3. C) An existing business for sale might have
difficulties that Short and Shearer would inherit.
4. D) Short and Shearer greatly value
independence.
5. E) Existing small businesses are usually
carrying debts.
Answer: B
Diff: 3
Type: MC
Skill: Analysis
7) Short and Shearer
are two friends who want to begin an entrepreneurship as business partners.
They need to decide whether to start up a new business or to buy an existing business.
To do this, Short and Shearer need to weigh the pros and cons of each in order
to see what the best strategy for them would be.
Which of the
following, if true, would weaken the case for Short and Shearer buying an
existing business?
1. A) Short and Shearer could more easily obtain
financing for the purchase.
2. B) Buying an existing business involves fewer
legal hurdles than starting a new one.
3. C) Franchises have more potential for success
than single-facility businesses.
4. D) Short and Shearer have limited funds to
start with.
5. E) Existing businesses cost less to purchase
than new ones.
Answer: D
Diff: 3
Type: MC
Skill: Analysis
8) Short and Shearer
are two friends who want to begin an entrepreneurship as business partners.
They need to decide whether to start up a new business or to buy an existing
business. To do this, Short and Shearer need to weigh the pros and cons of each
in order to see what the best strategy for them would be.
Which of the
following, if true, would strengthen the case for Short and Shearer’s starting
a new business of their own?
1. A) Starting a new business would put a lot of
demands on their time.
2. B) Starting a new business involves more risk
than purchasing an existing one.
3. C) Starting a new business would give them a
lot of freedom and independence.
4. D) Starting a new business would mean hiring
many new employees right away.
5. E) Starting a new business involves a lot of
stress for the proprietors.
Answer: C
Diff: 3
Type: MC
Skill: Analysis
9) Short and Shearer
are two friends who want to begin an entrepreneurship as business partners.
They need to decide whether to start up a new business or to buy an existing
business. To do this, Short and Shearer need to weigh the pros and cons of each
in order to see what the best strategy for them would be.
Which of the
following, if true, would weaken the case for Short and Shearer’s starting a
new business?
1. A) Starting a new business allows an
entrepreneur to determine their own working hours.
2. B) Starting a new business allows an
entrepreneur to establish their own clientele.
3. C) Starting a new business allows an
entrepreneur to use their own ideas.
4. D) Starting a new business gives a potential
for a feeling of great accomplishment.
5. E) Starting a new business involves using an untested
business model.
Answer: E
Diff: 3
Type: MC
Skill: Analysis
10) Short and Shearer
are two friends who want to begin an entrepreneurship as business partners.
They need to decide whether to start up a new business or to buy an existing
business. To do this, Short and Shearer need to weigh the pros and cons of each
in order to see what the best strategy for them would be.
In order to help
ensure success for their new business, which of the following questions would
be least helpful
for Short and Shearer to periodically ask themselves?
1. A) How well does our firm’s operation align
with the business plan?
2. B) How many employees do we have?
3. C) How are we handling our finances?
4. D) How are our employees performing?
5. E) How much debt can we afford to carry?
Answer: B
Diff: 3
Type: MC
Skill: Analysis
11) Sam and Nina want
to start a dry-cleaning service and need to decide on the best form of business
ownership, based on their respective abilities and the kind of business they
want to run. They could either jointly own the business as a partnership, or
one of them could own it as a sole proprietorship.
Which of the
following, if true, would strengthen the case for Nina running the business as
a sole proprietorship?
1. A) Sam is experienced in dry-cleaning.
2. B) Sam has a wide base of existing customer
contacts.
3. C) Sam is not willing to take on legal
liability in the company.
4. D) Nina is relatively new to the dry-cleaning
business.
5. E) Nina is not much of a “people person.”
Answer: C
Diff: 3
Type: MC
Skill: Analysis
12) Sam and Nina want
to start a dry-cleaning service and need to decide on the best form of business
ownership, based on their respective abilities and the kind of business they
want to run. They could either jointly own the business as a partnership, or
one of them could own it as a sole proprietorship.
Which of the
following, if true, would weaken the case for Nina running the business as a
sole proprietorship?
1. A) Nina has a degree in accounting.
2. B) Nina’s parents also ran a dry-cleaning
business.
3. C) Nina had the initial idea to start the new
business.
4. D) Sam is anxious to take on a lead role in
the business.
5. E) Sam does not have any previous dry-cleaning
experience.
Answer: D
Diff: 3
Type: MC
Skill: Analysis
13) Sam and Nina want
to start a dry-cleaning service and need to decide on the best form of business
ownership, based on their respective abilities and the kind of business they
want to run. They could either jointly own the business as a partnership, or
one of them could own it as a sole proprietorship.
Which of the
following, if true, would strengthen the case for Sam and Nina owning the
business in a partnership?
1. A) Sam and Nina have very different
personalities.
2. B) Sam and Nina have the same skill sets.
3. C) Sam and Nina are both motivated and
energetic.
4. D) Nina has good leadership qualities.
5. E) Sam has a strong marketing background.
Answer: C
Diff: 3
Type: MC
Skill: Analysis
14) Sam and Nina want
to start a dry-cleaning service and need to decide on the best form of business
ownership, based on their respective abilities and the kind of business they
want to run. They could either jointly own the business as a partnership, or
one of them could own it as a sole proprietorship.
Which of the
following, if true, would weaken the case for Sam and Nina owning the business
in a partnership?
1. A) Sam and Nina have different personalities.
2. B) Sam and Nina have known each other for many
years.
3. C) Sam and Nina have conflicting ideas about
what would make a dry-cleaning business succeed.
4. D) Nina is experienced in finance but not in
equipment repair.
5. E) Sam is experienced in dry-cleaning but not
skilled as an administrator.
Answer: C
Diff: 3
Type: MC
Skill: Analysis
15) Three friends in
the United States want to start a warehousing and distribution business. They
each want to be co-owners of the new business with a stake in its profits. The
new business will therefore be a corporation, but they need to determine which
kind of corporation it should be so that it will best fit their interests in
the business.
Which of the
following, if true about the owners’ plan for the new business, would
strengthen the case that it should be registered as an S corporation? (Note: An
S corporation in the United States is a hybrid of a private corporation and a
partnership. It is organized and operates like a corporation, but it is treated
like a partnership for tax purposes. To qualify, firms must meet stringent
legal conditions.)
1. A) They want their shareholders to be
personally liable for the corporation’s debts.
2. B) They want to have an unlimited number of
shareholders.
3. C) They do not want the company to have to pay
corporate income taxes.
4. D) They do not want to have to meet any
start-up requirements.
5. E) They don’t want to have a board of
directors.
Answer: C
Diff: 3
Type: MC
Skill: Analysis
4.3
True/False Questions
1) Self-employed
Canadians account for about half of the total workforce.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 75
Skill: Knowledge
Objective: 4.1
2) Entrepreneurship is
an individual’s willingness to take advantage of business opportunities and to
assume the risks of establishing and operating a business.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 76
Skill:
Comprehension
Objective: 4.1
3) A small business
is, by definition, entrepreneurial.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 75
Skill:
Comprehension
Objective: 4.1
4) A small business is
an owner-managed business with less than 100 employees.
Answer: TRUE
Diff: 1 Type:
TF Page Ref: 75
Skill: Knowledge
Objective: 4.1
5) A new venture is a
recently formed commercial organization that provides goods, but not services,
for sale.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 76
Skill: Knowledge
Objective: 4.1
6) The majority of
businesses in Canada have no employees (i.e., the only person is the business
is the owner).
Answer: TRUE
Diff: 2
Type: TF Page Ref: 75
Skill: Knowledge
Objective: 4.1
7) In the 2015
Heritage Foundation index of economic freedom, Hong Kong ranked highest and
North Korea ranked lowest.
Answer: TRUE
Diff: 3
Type: TF Page Ref: 76
Skill: Knowledge
Objective: 4.1
8) A key difference
between intrapreneurs and entrepreneurs is that intrapreneurs typically don’t have
to concern themselves with getting the resources needed to bring a new product
to market.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 76
Skill:
Comprehension
Objective: 4.1
9) About 85 percent of
all businesses in Canada are small.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 77
Skill:
Comprehension
Objective: 4.2
10) Manufacturing
businesses are the largest and fastest growing segment of small business
enterprise.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 77
Skill: Knowledge
Objective: 4.2
11) During the period
from 2002 to 2012, small businesses created about three-quarters of all the
jobs in Canada.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 77
Skill: Knowledge
Objective: 4.2
12) Women lead only a
small percentage of small- and medium-sized firms that export goods and
services.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 77
Skill: Knowledge
Objective: 4.2
13) The most important
reason that women give for starting their own business is to gain control of
their schedules.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 77
Skill: Knowledge
Objective: 4.2
14) Most new ventures
are the result of a search for a viable business idea.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 78
Skill: Knowledge
Objective: 4.3
15) Most new venture
ideas come from peoples’ hobbies.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 79
Skill: Knowledge
Objective: 4.3
16) An idea with high
business exit costs is good, because it will motivate the entrepreneur to work
hard to achieve success.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 80
Skill:
Comprehension
Objective: 4.3
17) If market
conditions are stable, the benefits gained from research diminish quickly.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 81
Skill:
Comprehension
Objective: 4.3
18) A sales forecast
is the foundation for determining the financial viability of a venture and the
resources needed to start it.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 80
Skill:
Comprehension
Objective: 4.3
19) Planning does not
have to be complete before action is taken.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 81
Skill:
Comprehension
Objective: 4.3
20) Equity refers to
the money, or capital, invested in the enterprise by individuals in return for
an ownership interest.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 82
Skill: Knowledge
Objective: 4.3
21) A business is at
its riskiest point during the start-up phase.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 82
Skill: Knowledge
Objective: 4.3
22) Private investors,
also known as angels, provide most of the debt financing for new businesses.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 82
Skill:
Comprehension
Objective: 4.3
23) Suppliers who
provide goods such as inventory are providing equity financing.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 82
Skill:
Comprehension
Objective: 4.3
24) Survival rates for
new ventures are greatly improved by getting involved with an incubator.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 83
Skill:
Comprehension
Objective: 4.3
25) Small founding
teams tend to work better than big ones when starting a company, and it is
quite common for the initial team to consist of just two people: a craftsperson
and a salesperson.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 84
Skill: Knowledge
Objective: 4.3
26) It is important to
assess the “fit” between the various elements in the entrepreneurial process at
the outset and then stick with that setup as the business grows.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 84
Skill:
Comprehension
Objective: 4.3
27) The risks of
buying an existing firm are greater than the risks of starting a business from
scratch because the existing firm may have a bad reputation among consumers.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 85
Skill:
Comprehension
Objective: 4.4
28) Two of the major
problems in family businesses are choosing and training successors and
determining the direction of the firm.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 85
Skill:
Comprehension
Objective: 4.4
29) The franchise
agreement usually requires that the franchisee pay a fee to the franchisor, but
sometimes the franchisor is willing to pay the franchisee if the franchisee has
a good track record of success.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 86
Skill:
Comprehension
Objective: 4.4
30) A significant
advantage of a franchise as a way of running a small business is that the
chances of success are enhanced.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 86
Skill:
Comprehension
Objective: 4.4
31) A disadvantage of
a franchise is the initial franchise fee.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 86
Skill:
Comprehension
Objective: 4.4
32) Luck is a
significant factor in the success of some small businesses.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 87
Skill: Knowledge
Objective: 4.5
33) A study conducted
by CIBC found that small businesses with above-average growth rates were run by
owners with more formal education.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 87
Skill: Knowledge
Objective: 4.5
34) Of every 100 small
businesses that begin operation, only 85 will still be operating after just one
year.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 87
Skill: Knowledge
Objective: 4.5
35) Sole proprietors
can generally treat business revenues and operating expenses as part of their personal
finances.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 89
Skill:
Comprehension
Objective: 4.6
36) Shares of stock in
a private corporation are available for sale to the general public.
Answer: FALSE
Diff: 1
Type: TF Page Ref: 90
Skill: Knowledge
Objective: 4.6
37) An income trust
structure allows a corporation to avoid paying tax if it distributes all or
most of its earnings to investors.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 90
Skill: Knowledge
Objective: 4.6
38) Company employees
are not allowed to be members of the board of directors.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 89
Skill: Knowledge
Objective: 4.6
39) IPOs are
particularly attractive to companies during stock market declines because investors
can buy the shares of stock for a low price, and this makes it more likely that
the company will be able to sell a lot of shares.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 90
Skill:
Comprehension
Objective: 4.6
40) In a corporation,
a shareholder with 10 shares receives 10 times the dividend paid to a
shareholder with 1 share.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 89
Skill:
Comprehension
Objective: 4.6
41) Shareholders pay
income taxes on the dividends they receive from the corporation, but the
dividends are tax deductible for corporations.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 90
Skill:
Comprehension
Objective: 4.6
42) Unlike
corporations, co-operatives do not have directors and appointed officers.
Answer: FALSE
Diff: 2
Type: TF Page Ref: 90
Skill:
Comprehension
Objective: 4.6
43) Co-operatives are
allowed to deduct patronage refunds to members out of before-tax income.
Answer: TRUE
Diff: 2
Type: TF Page Ref: 90
Skill:
Comprehension
Objective: 4.6
44) A co-operative is
an incorporated form of business.
Answer: TRUE
Diff: 1
Type: TF Page Ref: 90
Skill: Knowledge
Objective: 4.6
4.4 Short
Answer Questions
1) How is a small
business defined?
Answer: A small
business is an independently owned and managed business with less than 100
employees.
Diff: 2
Type: SA Page Ref: 75
Skill: Knowledge
Objective: 4.1
2) What is an entrepreneur?
Answer: An
entrepreneur is a business person who accepts both the risks and the
opportunities involved in creating and operating a new business venture.
Diff: 2
Type: SA Page Ref: 76
Skill: Knowledge
Objective: 4.1
3) What is an intrapreneur?
Answer: An
intrapreneur is a person who creates something new within an existing large
firm or organization.
Diff: 1
Type: SA Page Ref: 76
Skill: Knowledge
Objective: 4.1
4) Define a new venture.
Answer: A new
venture is a recently formed new commercial organization that provides goods
and/or services for sale.
Diff: 1
Type: SA Page Ref: 76
Skill: Knowledge
Objective: 4.1
5) What is the impact
of new ventures on job creation?
Answer: New
firms are the main source of job creation, and they are responsible for the
vast majority of new products and services that are developed. From 2002 to
2012, small businesses created 77 percent of all the jobs in Canada.
Diff: 1
Type: SA Page Ref: 77
Skill:
Comprehension
Objective: 4.2
6) What are the main
reasons that female entrepreneurs give for starting a business?
Answer: Gaining
control over their schedule, seeing a market opportunity, and being frustrated
by the “glass ceiling” at big companies
Diff: 1
Type: SA Page Ref: 77
Skill: Knowledge
Objective: 4.2
7) List the major
parts of a good business plan.
Answer:
– Company description
– Product or service
description
– Marketing analysis
and plan
– Operating plan
– Management plan
– Financial plan
– Supporting details
Diff: 1
Type: SA Page Ref: 81
Skill: Knowledge
Objective: 4.3
8) What are the three
key elements in the entrepreneurial process?
Answer: The
three key elements are the entrepreneur, the opportunity, and the resources.
Diff: 1
Type: SA Page Ref: 78
Skill: Knowledge
Objective: 4.3
9) What factors in the
broader environment influence the entrepreneurial process?
Answer:
– Social factors
– Economic factors
– Political factors
– Technological
factors
Diff: 2
Type: SA Page Ref: 78
Skill: Knowledge
Objective: 4.3
10) Where do the
majority of entrepreneurial ideas come from?
Answer: They
come from everyday events relating to work or life, with work experience begin
the most common source.
Diff: 2
Type: SA Page Ref: 78
Skill: Knowledge
Objective: 4.3
11) What are the two
most important questions to ask when evaluating an idea for market and
financial viability?
Answer:
– Are there enough
customers willing to buy the product or service?
– Will sales lead to
profits?
Diff: 2
Type: SA Page Ref: 80
Skill:
Comprehension
Objective: 4.3
12) What is a sales forecast?
Answer: A sales
forecast is an estimate of how much of a service/product will be purchased
during a specific period of time.
Diff: 1
Type: SA Page Ref: 80
Skill:
Comprehension
Objective: 4.3
13) What is the
mandate of the Business Development Bank of Canada?
Answer: The
mandate of the Business Development Bank of Canada (BDC) is to help develop
Canadian businesses, particularly small- and medium-sized companies. It
provides financing, venture capital, and consulting strategies.
Diff: 1
Type: SA Page Ref: 83
Skill:
Comprehension
Objective: 4.3
14) What is a business incubator?
Answer: A
business incubator provides new businesses with support to help nurture them
into a successful future. The type of support varies but some key forms of
assistance include consulting services, legal advice, accounting services,
business contacts, clerical services, and office space.
Diff: 1
Type: SA Page Ref: 83
Skill:
Comprehension
Objective: 4.3
15) How has the
Internet affected small business start-ups in recent years?
Answer:
Entrepreneurs can create and expand new businesses faster and more easily than
ever before because the Internet provides fundamentally new ways of doing
business. The Internet also helps entrepreneurs to gather information, to write
a business plan and to access government grants.
Diff: 1
Type: SA Page Ref: 83
Skill:
Comprehension
Objective: 4.3
16) What are the three
basic strategies for becoming a business owner?
Answer: The
three basic strategies are starting a new business from scratch, buying an
existing business, or buying a franchise.
Diff: 2
Type: SA Page Ref: 85
Skill:
Comprehension
Objective: 4.4
17) What is the most
important factor contributing to small business failure?
Answer: The most
important factor is managerial incompetence.
Diff: 2
Type: SA Page Ref: 87
Skill:
Comprehension
Objective: 4.5
18) What is a general partnership?
Answer: A
general partnership is one in which all partners are jointly liable for the
debts of the business. There is no legal limit to the number of parties who may
form a general partnership. Partners may invest equal or unequal sums of money
and may earn profits that bear no relation to their investments.
Diff: 2
Type: SA Page Ref: 88
Skill:
Comprehension
Objective: 4.6
19) What are the two
most widely used methods to form a corporation?
Answer: The two
most widely used methods are federal incorporation under the Canada Business
Corporations Act, and provincial incorporation under any of the provincial
corporations acts.
Diff: 2
Type: SA Page Ref: 90
Skill: Knowledge
Objective: 4.6
20) Describe the role
and responsibilities of the board of directors.
Answer:
– Oversee the
corporation’s operation
– Select the president
and other officers to run the day to day operations
– Set dividend policy
– Set policies on
major spending and executive salaries and benefits
Diff: 2
Type: SA Page Ref: 89
Skill:
Comprehension
Objective: 4.6
21) What does it mean
to say that shareholders in a corporation have limited liability?
Answer: The
amount of money that shareholders can lose is limited to the amount of their
initial investment.
Diff: 2
Type: SA Page Ref: 90
Skill:
Comprehension
Objective: 4.6
22) What is a private corporation?
Answer: A
private corporation is one in which the shares of stock are held by only a few
people and are not available for sale to the public.
Diff: 2
Type: SA Page Ref: 90
Skill:
Comprehension
Objective: 4.6
23) What is a co-operative?
Answer: A
co-operative is an incorporated form of business that is organized, owned, and
democratically controlled by the people who use its products and services.
Co-operatives are formed to benefit owners in the form of reduced prices or the
distribution of surpluses at year-end.
Diff: 2
Type: SA Page Ref: 90
Skill:
Comprehension
Objective: 4.6
4.5 Essay
Questions
1) What are some of
the difficulties involved in defining what a small business is?
Answer: Various
measures might be used, including the number of people the business employs,
the company’s sales revenue, the size of the investment required, or the type
of ownership structure the business has. The government relies on two different
sources for information about small business, and the relationship between
these two sources is often not clear. For example, Industry Canada reports that
there are 2.2 million business establishments in Canada and about 2.6 million
people who are self-employed, but there is no way of knowing how much overlap
there is between these two categories. In order to simplify things, a small
business is defined as one which is owner-managed and which has less than 100
employees.
Diff: 2
Type: ES Page Ref: 75
Skill:
Comprehension
Objective: 4.1
2) The Miller brothers
(Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are buying a
thousand-acre farm and plan to grow corn. They are not interested in bringing
in any outside owners. The brothers are realistic and expect to work very long
hours. However, they have a few critical decisions left to make. Should the
Miller brothers’ farm be conside
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