Exam 2

Question 1

Franchise

Answer 1

Any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services

Question 2

Debt financing

Answer 2

Secured financing of a new venture that involves a payback of the funds plus a fee

Question 3

Equity financing

Answer 3

Involves the sale of some of the ownership interest in the venture in returned for an unsecured investment in the firm; gives investors a share of the ownership

Question 4

Advantages of debt financing

Answer 4

No relinquishment of ownership, greater return on equity, low interest rates

Question 5

Disadvantages of debt financing

Answer 5

Monthly interest payments required, inhibition of growth and development

Question 6

Accounts receivable financing

Answer 6

Short-term financing that involves either the pledge of receivables as collateral for a loan or the sale of receivables at a discounted value

Question 7

Venture capitalists

Answer 7

Valuable and powerful sources of equity funding for new ventures who provide capital for startups, market research, management consulting, contacts, assistance in negotiation

Question 8

Regulation D

Answer 8

Private placement; Securities and Exchange Commission (SEC) regulations for reports and statements required when selling stock to private parties

Question 9

Market

Answer 9

A group of consumers who have purchasing power and unsatisfied needs

Question 10

Primary data

Answer 10

Information that is gathered specifically for the research at hand

Question 11

Where to find primary data

Answer 11

Surveys, experimentations

Question 12

Secondary data

Answer 12

Information that has already been compiled

Question 13

Where to find secondary data

Answer 13

Internal and external sources

Question 14

Market segmentation

Answer 14

The process of identifying a specific set of characteristics that differentiate one group of consumers from the rest

Question 15

What role do demographic variables play in market segmentation?

Answer 15

Age, marital status, sex, occupation, income, and location

Question 16

What role do benefit variables play in market segmentation?

Answer 16

Convenience, cost, style, trends

Question 17

Five major consumer classifications

Answer 17

Convenience goods, shopping goods, specialty goods, unsought goods, new products

Question 18

Five steps to developing a market plan

Answer 18

1. Appraise marketing strengths and weaknesses
2. Develop marketing objectives
3. Develop product/service strategies
4. Develop marketing strategies
5. Determine a pricing structure

Question 19

Benefits of a business plan for the entrepreneur

Answer 19

The time, effort, research, and discipline required to create a formal business plan forces the entrepreneur to view operating strategies and expected results critically and objectively

Question 20

Benefits of a business plan for outside evaluators

Answer 20

The business plan provides a tool for use in communications with outside financial sources

Question 21

Components to consider in packaging the business plan

Answer 21

Appearance, length, cover and title page, executive summary, table of contents

Question 22

Guidelines for business plan

Answer 22

Keep plan respectably short, organize/package appropriately, orient plan toward future, avoid exaggeration, highlight critical risk, give evidence of effective team, do not over-diversify, ID target market, third person, capture attention

Question 23

Segments of business plan

Answer 23

1. Executive summary
2. Business description
3. Marketing
4. Operations
5. Management
6. Financials
7. Critical risks
8. Harvest strategy
9. Milestone schedule
10. Appendix and bibliography

Question 24

Milestone schedule

Answer 24

Timetable for the activities to be accomplished

Question 25

Income statement

Answer 25

Profit and loss (P&L); provides results of the firm’s operations

Question 26

Income statement categories

Answer 26

Revenues, expenses, net income

Question 27

Cash flow statement

Answer 27

An analysis of the cash availability and cash needs of the firm that shows the effects of a firm’s operating, investing, and financing activities on its cash balance

Question 28

Pro forma statement

Answer 28

Projection of a firm’s financial position over a future period or on a future date; educated guess

Question 29

Fixed costs

Answer 29

Costs that do not fluctuate