Scarb Eesbm6e TB 04

Essentials of Entrepreneurship & Small Business Management, 6e (Scarborough)
Chapter 4 Conducting a Feasibility Analysis and Crafting a Winning Business Plan
1) The process of determining whether an entrepreneur's idea is a viable foundation for creating a
successful business is known as a:
A) business plan.
B) strategic analysis.
C) industry analysis.
D) feasibility analysis.
Answer: D
Diff: 1 Page Ref: 101
AACSB: Analytic Skills
2) Porter's five forces model assess industry attractiveness by surveying these five factors:
A) potential entrants, suppliers, buyers, substitutes, and rivalry among existing firms.
B) potential entrants, suppliers, buyers, similar products, and rivalry among existing firms.
C) potential entrants, suppliers, raw materials, substitutes, and rivalry among existing firms.
D) potential entrants, competitors, buyers, substitutes, and rivalry among existing firms.
Answer: A
Diff: 3 Page Ref: 102-104
3) The strongest of the five forces in most industries is:

A) rivalry among companies competing in the industry.
B) bargaining power of buyers.
C) threat os new entrants to the industry.
D) threat of substitute products or services.
Answer: A
4) Switching costs, the number of buyers, and if the items represent a relatively small portion of
the cost of finished products are key consideration regarding the:
A) threat of new entrants to the industry.
B) rivalry among companies competing in the industry.
C) bargaining power of suppliers.
D) bargaining power of buyers.
Answer: D
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Copyright © 2011 Pearson Education, Inc.
5) Low capital requirements, cost advantages that are not related to company size, and the lack of
brand loyalty are considerations regarding the:
A) threat of new entrants to the industry.
B) threat of substitute products.
C) bargaining power of buyers.
D) rivalry among companies competing in the industry.
Answer: A
6) Products or services that may be sought as alternative solutionssuch as purchasing tax

planning software rather than paying a CPA to assist with preparing your taxesare referred to
as:
A) buyers products.
B) rivalry products.
C) substitute products.
D) competitive alternatives.
Answer: C
7) The force from the five forces model that considers economies of scale, initial capital
requirements, cost advantages relevant to company size, and lack of brand loyalty is the:
A) barganinig power of suppliers.
B) threat of new entrants.
C) threat of substitute products or services.
D) rivalry among companies competing.
Answer: B
8) The primary purpose of the five forces matrix is to:

A) assign values to each of the five elements.
B) provide a graphic.
C) list the five forces in rank order.
D) assess the five forces as compared to a standard value.
Answer: A
Diff: 2 Page Ref: 104, Table 4.1
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9) The process in which entrepreneurs test their business models on a small scale before
committing serious resources to launch a business that might not work is known as:
A) business modeling.
B) business prototyping.
C) business planning.
D) product or service feasibility analysis.
Answer: B
10) An analysis that determines the degree to which a product or service idea appeals to potential
customers and identifies the resources necessary to produce the product or provide the service is
refereed to as:
A) product or service feasibility analysis.
B) business prototyping.
C) business plan analysis.
D) financial feasibility analysis.
Answer: A
11) Conducting ________ research involves collecting data firsthand and analyzing it while
________ research involves gathering data that has already been complied and is available.
A) primary; secondary
B) secondary; primary
C) primary; industry
D) product; secondary
Answer: A
12) One form of primary research is:

A) to review published articles.
B) Internet research.
C) library research.
D) a focus group.
Answer: D
13) The financial feasibility analysis takes these aspects into consideration:
A) capital requirements, human resources, and return on investment.
B) capital requirements, estimated earnings, and return on investment.
C) capital requirements, estimated earnings, and return on sales.
D) capital requirements, estimated earnings, and return on owner's equity.
Answer: B
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14) The final aspect of the financial feasibility analysis combines the estimated earings and the
capital requirements to determine the:
A) estimated earnings.
B) total capital requirements.
C) net profit.
D) rate of return on the capital invested.
Answer: D
15) The primary purpose of a business plan is to:

A) attract lenders and investors.
B) enable an entrepreneur to take her company public.
C) guide a company by charting its future course and devising a strategy for success.
D) meet SEC and other legal requirements designed to protect lenders and investors.
Answer: C
16) A business plan is a written summary of:

A) an entrepreneur's proposed business venture.
B) a business venture's operational, financial, and marketing details.
C) the skills and abilities of a business venture's managers.
D) All of the above
Answer: D
AACSB: Communication
17) A business plan:

A) is a valuable managerial tool that helps an entrepreneur focus on developing a course for the
business in the future.
B) is a valuable tool for convincing lenders or investors to put money into the business.
C) forces an entrepreneur to think a business idea through, considering both its positive and its
negative aspects.
D) All of the above
Answer: D
18) A solid business plan:

A) forces potential entrepreneurs to look at their business idea in the harsh light of reality.
B) requires a potential entrepreneur to assess the venture's chances of success more objectively.
C) helps prove to outsiders, such as potential lenders and investors, that a business idea can be
successful.
D) All of the above
Answer: D
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19) The second essential purpose for creating a business plan is:
A) to guide the operation of the company by charting its future course and devising a strategy for
following it.
B) to attract lenders and investors.
C) to file with the SEC before a public stock offering.
D) to attract potential managers and employees to run the new venture.
Answer: B
20) The three "tests" associated with a business plan are:

A) reality, competitive, and value.
B) competitive, profitability, and value.
C) value, reality, and profitability.
D) reality, value and litmus.
Answer: A
21) The ________ test that a business plan must pass in order to attract financing from lenders
and investors involves proving that a market for the company's product or service actually does
exist and that the company actually can build it for the cost estimates included in the plan.
A) reality
B) competitive
C) value
D) profitability
Answer: A
22) The reality test that a business plan must pass in order to attract financing from lenders and
investors involves proving:
A) that the company can gain a competitive advantage over its key competitors.
B) that the business venture will provide lenders and investors a high probability of repayment or
an attractive rate of return.
C) that a market for the company's product or service actually does exist and that the company
can actually build it for the cost estimates included in the plan.
D) that the industry in which the business will compete is growing faster than the overall
economy and has room for more competitors.
Answer: C
5
23) The competitive test that a business plan must pass in order to attract financing from lenders
and investors involves proving:
Answer: A
24) The value test that a business plan must pass in order to attract financing from lenders and
investors involves proving:
Answer: B
25) Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the
entrepreneur:
A) is probably the action-oriented sort of person they need running a business.
B) needs to hire a consultant to write the plan for him.
C) probably lacks the discipline to run a business.
D) is just like the majority of entrepreneurs and will probably do quite well.
Answer: C
26) Which of the following statements is not true according to the "two-thirds rule?"
A) Only two-thirds of entrepreneurs with a sound and viable business venture will find financial
backing.
B) Entrepreneurs who do get financing for their business will get only two-thirds of the capital
they initially requested.
C) Entrepreneurs who do get financing for their businesses will find that it takes them two-thirds
longer to get it than they anticipated.
D) Only two-thirds of entrepreneurs will take the time to prepare a business plan.
Answer: D
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27) Before putting their money into a business idea, potential lenders and investors:
A) look for entrepreneurs who have evaluated the risk in the business venture realistically and
have a strategy for addressing it.
B) want proof that the business will become profitable.
C) want proof that the business will produce a reasonable return on their investment.
D) All of the above
Answer: D
28) ________ is an entrepreneur's best insurance against launching a business destined to fail or
mismanaging a potentially successful company.
A) Bankrolling the business with plenty of startup capital
B) Creating a solid business plan
C) Spending lots of money on marketing and advertising
D) Hiring a team of accountants and attorneys as advisors
Answer: B
AACSB: Reflective Thinking
29) Which of the following is true regarding the process of building a business plan?
A) It allows an entrepreneur to replace "I think" with "I know" and to make mistakes on paper,
which is cheaper than making them in reality.
B) It reduces the risk and uncertainty of launching a company by "teaching" the entrepreneur
more about the industry, the market and the proposed venture.
C) It requires an entrepreneur to subject the business idea to a more objective and critical
evaluation.
D) All of the above
Answer: D
30) Which of the following is true about the preparation of a business plan?
A) The format should follow a "cookie-cutter" approach to ensure uniformity and consistency
with others and to promote ease of understanding.
B) The elements of the plan may be standard, but the content should reflect the unique aspects of
the business and the excitement of the entrepreneur.
C) The plan should cover every standard element in great detail and be at least 100 pages long to
prove to potential lenders and investors that the entrepreneur has studied the business and the
market opportunity.
D) Entrepreneur should avoid seeking the advice of professionals, such as accountants, business
professors, and attorneys.
Answer: B
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31) Ideally, a business plan should range from ________ pages in length.
A) 10 to 20
B) 25 to 40
C) 50 to 70
D) 75 to 100
Answer: B
32) The ________ is also known as the "elevator pitch" and is written last, but is included as the
first part of the business plan; it should summarize all the relevant points in about two pages.
A) loan proposal
B) business history
C) business profile
D) executive summary
Answer: D
33) The executive summary section of the business plan:

A) should be a concise summary of the business venture.
B) should be no more than two pages long.
C) must capture the reader's attention and entice her to read the rest of the plan.
D) All of the above
Answer: D
34) The executive summary section of the business plan:

A) is the last section of the plan but should be the first part written.
B) should be no more than 8 or 10 pages long.
C) should summarize the essence of the plan in a capsulated form and should capture the reader's
attention.
D) All of the above
Answer: C
35) The ________ serves as the "thesis statement" for the entire business plan and is the broadest
expression of a company's purpose and defines the direction in which it will move.
A) executive summary
B) mission statement
C) company history
D) marketing strategy
Answer: B
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36) The company history section of the business plan typically includes:
A) significant financial and operational events.
B) highlights of the key goals and objectives the company has accomplished in the past.
C) a brief description of when and how the company was formed and how it has evolved over
time.
D) All of the above
Answer: D
37) The ________ highlights significant financial and operational events in the company's life
and should concentrate on the company's accomplishments.
B) company history
C) business and industry profile
Answer: B
38) Issues such as market size, growth trends, ease of market entry and exit, the presence of
cyclical or seasonal sales trends, and the competitive dynamics of an industry appear in the
________ section of the business plan.
B) company history
Answer: C
39) The ________ acquaints lenders and investors with the nature of the business and the general
goals and objectives of the company.
B) company history
Answer: C
9
40) ________ are broad, long-range statements of what a company plans to achieve in the future
that guide its overall direction and addresses the question, "Why am I in business?"
A) Goals
B) Strategies
C) Objectives
D) Key performance factors
Answer: A
41) ________ are short-term, specific targets which are attainable, measurable, and controllable.
A) Objectives
B) Policies
C) Goals
D) Standard operating procedures
Answer: A
42) The section that describes "how to get there" and describes a competitive edge that sets the
business apart is referred to as the:
A) business strategy.
B) executive summary.
C) industry profile.
D) vision statement.
Answer: A
43) In the business strategy section of the business plan, the entrepreneur should explain to
investors:
A) significant financial and operational events in the life of the company.
B) how she intends to accomplish the company's goals and objectives.
C) the nature and characteristics of the target market.
D) All of the above
Answer: B
10
44) Which of the following would be included in the description of the product or service section
of the business plan?
A) The position of the product in the product life cycle
B) A summary of any patents, copyrights, or trademarks protecting the product or service
C) A description of the features and the benefits customers get by purchasing the company's
products or services
D) All of the above
Answer: D
45) A ________ is a descriptive fact about a product or service; a ________ is what the customer
gains from that characteristic.
A) feature; benefit
B) feature; trait
C) benefit; feature
D) benefit; trait
Answer: A
46) What is the lesson to be learned about writing a business plan from Leo Burnett's statement,
"Don't tell people how good you make the goods; tell them how good your goods make them?"
A) The plan should emphasize the features of the company's products and services rather than
their benefits.
B) The plan should describe how the business will transform tangible product or service features
into important but often intangible customer benefits.
C) The plan should recognize that advertising is a waste of money for startup companies.
D) The plan should focus on developing sales in a niche rather than across an entire industry.
Answer: B
11
Refer to the following information to answer the questions below:
Describing her company's revolutionary design for a bottle cap, Kyoto says, "It has a special
locking mechanism that you know is engaged when a red panel is showing through this little
window on top of the cap. If you want to keep unauthorized handsfor instance, those of
childrenfrom opening the bottle, you engage the locking mechanism. Unlike other childproof
caps, however, this design does not frustrate adults who might have arthritis and elderly people
whose grip may not be as strong as it once was." Removing the cap from the bottle in no time
with just a few turns, Kyoto says, "They can open the cap quite easily by disengaging the locking
mechanism this way ... see? You get the safety of a childproof cap without the problems most
adults have getting them off!"
47) The special locking mechanism on Kyoto's new cap is a ________ of the product.
A) feature
B) unique selling proposition
C) benefit
D) All of the above
Answer: A
48) The fact that with Kyoto's new cap "you get the safety of a childproof cap without the
problems most adults have getting them off" is a ________ of the product.
A) feature
B) trait
C) benefit
D) attribute
Answer: C
49) Which of the following would be considered a benefit of Kyoto's new cap?
A) The special locking mechanism
B) The red panel showing through the little window on top of the cap signaling that the locking
mechanism is engaged
C) The fact that you get the safety of a childproof cap without the problems most adults have
getting them off
D) All of the above
Answer: C
12
50) Which of the following questions will probably not be addressed in the marketing strategy
section of the business plan?
A) Who are my target customers, what are their characteristics, and how many are in my
company's trading area?
B) What, why, and when do my target customers buy?
C) What exit policy do I have in place for my investors?
D) How should I seek to position my company in its market(s)?
Answer: C
51) When formulating a marketing strategy, small companies usually are most successful when
they:
A) try to be "everything to everybody."
B) focus on a particular market niche where they can excel at meeting customers' needs and
wants.
C) compete with their larger rivals on the basis on price.
D) discover what the market leader is doing and pursue a "me-too" strategy that imitates the
leader.
Answer: B
52) Defining the company's target market, its characteristics, and its potential is part of which
element of the business plan?
A) Description of the product or service
B) Marketing strategy
C) Competitor analysis
D) Business and industry profile
Answer: B
53) Proving that a profitable market exists involves:

A) proving that customers in the marketplace need or want the good or service and are willing to
pay for it.
B) documenting claims about market size and growth rates with as much factual information as
possible.
C) making claims such as "This market is so big that if we get just 1 percent of it, we'll be
profitable within 6 months."
D) A and B only
Answer: D
13
54) An explanation of how the product will be distributed is contained within the ________
section of the business plan.
A) description of the product line
B) marketing strategy
C) competitive analysis
D) business strategy
Answer: B
55) When creating financial forecasts in a business plan for a proposed venture, an entrepreneur
should:
A) be sure that all forecasts are realistic.
B) list all previous loans which are in default.
C) avoid including a statement of the assumptions on which financial projections are based.
D) present an overly optimistic view of what is ahead for the business.
Answer: A
Diff: 2 Page Ref: 119, 121
AACSB: Ethical Reasoning
56) The focus of the competitor analysis section of the business plan is on:
A) demonstrating the existence of the market for your product.
B) showing that your experienced management team is better than your competitors'.
C) demonstrating your company's advantage over competitors.
D) describing your overall product line.
Answer: C
57) The plan of operation of the company within the business plan should detail:
A) the experience of the management team.
B) the production process for the product being sold.
C) plans for keeping the important officers in place with the company.
D) the description of the management team.
Answer: C
58) The organization chart is described in which section of the business plan?
A) The plan of operation
B) The resumes of the officers/owners
C) Description of the management team
D) The executive summary
Answer: A
14
59) The form of ownership under which a company is organized appears in which section of the
business plan?
A) Marketing strategy
B) Business strategy
C) Plan of operation
D) Mission statement
Answer: C
60) The loan proposal section of a business plan should include all but which of the following?
A) A general request for funds without stating a specific dollar amount
B) A repayment schedule and exit strategy
C) A timetable for implementing the plan
D) The purpose of the financing
Answer: A
61) Which of the following statements about the preparation of a business plan is/are not true?
A) Grammatical and spelling errors in a business plan don't really count since potential lenders
and investors judge the quality of a plan by its content.
B) The business plan should be "crisp," long enough to say what it should but not so long that it
is a chore to read.
C) Always include cash flow projections for the venture, in addition to projected income
statements and balance sheets.
D) Always tell the truth.
Answer: A
62) The criteria lenders and investors use to evaluate the credit worthiness of entrepreneurs that
are seeking financingincluding capital, capacity, collateral, character, and conditionsare
referred to as:
A) components of the business plans.
B) aspects of financial strategy.
C) the five C's of credit.
D) interesting considerations.
Answer: C
15
63) A synonym for capacity is:
A) cash flow.
B) equipment.
C) investors.
D) obligations.
Answer: A
64) The most common reason cited by banks for rejecting small business loans is:
A) poor credit history.
B) undercapitalization and too much debt.
C) lack of collateral.
D) insufficient cash flow or poor profitability.
Answer: B
65) Carly will be presenting her business plan to potential lenders and investors soon. Which of
the following is not one of the suggested helpful tips for presenting the business plan?
A) She should demonstrate enthusiasm for the venture but avoid becoming overemotional about
it.
B) She should use visual aids to make it easier for people to follow her presentation.
C) She should avoid getting caught up in too much detail in early meetings with potential lenders
and investors.
D) She should use a great deal of technological jargon to impress the audience with her
knowledge.
Answer: D
66) After presenting her business plan to a group of potential lenders and investors, an
entrepreneur should:
A) sit back and wait to hear from those who might be interested in the venture.
B) conduct credit checks on all potential lenders and investors.
C) take a proactive approach by following up with every potential lender and investor to whom
she makes a presentation.
D) None of the above
Answer: C
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Essentials of Entrepreneurship & Small Business Management, 6e (Scarborough)

Chapter 4 Conducting a Feasibility Analysis and Crafting a Winning Business Plan

3) The strongest of the five forces in most industries is:

6) Products or services that may be sought as alternative solutionssuch as purchasing tax

8) The primary purpose of the five forces matrix is to:

12) One form of primary research is:

15) The primary purpose of a business plan is to:

16) A business plan is a written summary of:

17) A business plan:

18) A solid business plan:

20) The three "tests" associated with a business plan are:

33) The executive summary section of the business plan:

34) The executive summary section of the business plan:

53) Proving that a profitable market exists involves:

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