Deck 2: Developing the Business Idea

Question 1

Mark Twain said: "Like I tell anybody, if you fail to plan, you're planning to fail."

Answer 1

False

Question 2

A SWOT analysis is an examination of the strengths, weaknesses, opportunities, and threats to determine the business opportunity viability of an idea.

Answer 2

True

Question 3

An entrepreneur may start a number of different types of businesses, including salary-replacement firms, lifestyle firms, and entrepreneurial firms or ventures.

Answer 3

True

Question 4

A "venture opportunity screening" is the same thing as preparing a business plan.

Question 5

Ideas that are said to be "ahead of their time" are too early to become viable business opportunities for the inventor or innovator.

Question 6

A SWOT analysis should consider as potential strengths or weaknesses whether there are unfilled customer needs and the extent to which intellectual property rights exist.

Question 7

Best practices of high-growth, high-performance firms applied in the marketing practices area include "preparing detailed monthly financial plans for the next year and annual financial plans for the next five years.

Question 8

Best practices of high-growth, high-performance firms applied in the marketing practices area include "developing new products or services that are considered to be the best."

Question 9

Entrepreneurial ventures emphasize survival and providing an acceptable living for their owners with growth being a secondary goal.

Question 10

"Salary-replacement" firms provide their owners with income levels comparable to what they could have earned working for much larger firms.

Question 11

"Entrepreneurial ventures" are firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do.

Question 12

A sound business model should provide a plan to generate revenues, make profits, and produce free cash flows.

Question 13

Once conceptualized, a new idea should be examined for its business feasibility.

Question 14

A SWOT analysis focuses on strengths S), worries W), opportunities O), and treats T).

Question 15

Best practices of high-growth, high-performance firms applied in the management practices area include "assembling a management team that is balanced in both functional area coverage and industry/market knowledge."

Question 16

Lifestyle firms are growth-driven in terms of revenues, profits, and cash flows and also performance-oriented as reflected in rapid value creation over time.

Question 17

For ventures that first get to market or create intellectual property rights, it's common to price new products or services at high markups or profit margins.

Question 18

Best practices of high-growth, high-performance firms applied in the financial practices area include "preparing detailed monthly financial plans for the next year and annual financial plans for the next five years.

Question 19

Business opportunities, because they exist in real time, have a relatively narrow window of opportunity to become a successful business venture. However being the first to market does not guarantee success.

Question 20

A sound business model is a plan to generate investor interest, make profits, and grow asset investments.

Question 21

A SWOT analysis should consider the extent of existing competition and the likelihood of substitute products or services as potential strengths or opportunities.

Question 22

The compound rate of return that equates the present value of the cash inflows with the initial investment outlay is called the internal rate of return IRR).

Question 23

Bootstrapping refers to the process of minimizing resources such as the need for financial capital and finding unique sources for financing a new venture.

Question 24

Free cash flow to equity is the cash flow from producing and selling a product or providing a service.

Question 25

The VOS Indicator provides both qualitative and quantitative information about a venture's commercial potential.

Question 26

Venture opportunity screening involves assessment of an idea's commercial potential to produce revenue growth, financial performance, and value.

Question 27

One way to describe asset intensity is the dollar investment in assets needed to generate a dollar in sales.

Question 28

In a typical business plan, the section covering the management team does not need to disclose the expertise and experience of the management.

Question 29

Asset intensity and asset turnover are calculated as revenues divided by total assets.

Question 30

A successful, sound business model does not have to ultimately produce free cash flows.

Question 31

The process of moving from entrepreneurial opportunities to new businesses, products, or services begins with ideas, then moves to the preparation of a business plan, and finally ends with a feasibility study.

Question 32

The VOS Indicator is useful in assessing the commercial potential of a venture, but should not be used as the sole tool to determine a venture's fate.

Question 33

The non-financial option available to managers as the venture progresses through its lifecycle is known as real options.

Question 34

The first component of a sound business model is the need to generaterevenues.

Question 35

Business changes resulting in higher net profit always increases ROA.

Question 36

A high asset intensity implies a large investment in fixed assets and/or net working capital is needed to support revenue growth.

Question 37

A venture with a low score on the VOS Indicator should always be abandoned.

Question 38

Asset intensity is the net after-tax profit divided by total assets.

Question 39

A well-designed entrepreneurial venture bins with an idea that survives an analysis of its feasibility and results in a business model/plan.

Question 40

A venture opportunity-screening guide, called the VOS Indicator, is used to determine potential attractiveness of venture opportunities as business opportunities.

Question 41

A VOS indicator stands for:

A) venture opportunity screening indicator
B) viable opportunity statement indicator
C) venture only success indicator
D) viable assessment screening indicator

Question 42

A "score" in the range of 2.34-3.00 using the VOS Indicator^{TM ??}_{?? ?}would be considered a:

A) a low score
B) an average score
C) a high score
D) a very, very high score

Question 43

Free cash flows, which can be paid back to investors occurs when cash generated from operations exceeds all of the following except?

A) borrowing costs
B) non-cash depreciation
C) taxes
D) investment in assets

Question 44

Effective entrepreneurial management teams should include all of the following except?

A) provide expertise in the areas of marketing, finance, and operations
B) have successful experience in the venture's industry and markets
C) work collaboratively with each other
D) share the entrepreneurial spirit
E) in-house accounting, auditing, and tax professionals

Question 45

A SWOT analysis does not focus on which of the following components or areas?

A) strengths
B) weaknesses
C) new ideas
D) opportunities
E) threats

Question 46

A venture's value is determined by

A) the size and timing of its future free cash flows
B) time value of money
C) its net income
D) a and b
E) a and c

Question 47

SWOT analysis should at the very least consider which of the following areas:

A) experience/expertise
B) reputation value
C) first mover
D) a and b
E) a, b, and c

Question 48

The definition of an entrepreneurial firm is:

A) survival, high growth
B) high growth, high performance
C) survival, average performance
D) high, growth, average performance

Question 49

Revenues minus the cost of goods sold is called

A) gross profit
B) gross profit margin
C) net profit
D) net profit margin

Question 50

Dollar profit left after all expenses, including financing costs and taxes have been deducted from the firm's revenues is called

A) gross profit
B) gross profit margin
C) net profit
D) net profit margin
E) cost of goods sold

Question 51

An average score on using the VOS Indicator_?^TM would fall in the range:

A) 0.00-0.99
B) 1.00-1.66
C) 1.67-2.33
D) 2.34-3.00

Question 52

S. small businesses are predominately:

A) salary-replacement or entrepreneurial firms
B) lifestyle or entrepreneurial firms
C) entrepreneurial ventures
D) salary-replacement or lifestyle firms

Question 53

At the end of a qualitative-based venture opportunity screening exercise, the interviewer prepares a subjective assessment and indicates one of the following except for:

A) natural commercial potential
B) high commercial potential
C) average commercial potential
D) low commercial potential

Question 54

The evaluation of "entry barriers" occurs under which one of the following parts of the VOS indicator?

A) industry/market considerations
B) pricing/profitability considerations
C) financial/harvest considerations
D) management team considerations

Question 55

A viable venture opportunity is characterized by all of the following except?

A) creating or meeting a customer need
B) has perceived attraction to prospective investors
C) provides an initial competitive advantage
D) is timely in terms of time-to-market
E) offers the expectation of added value to investors

Question 56

Firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do are referred to as:

A) salary-replacement firms
B) lifestyle firms
C) entrepreneurial ventures
D) rapid value creation firms

Question 57

Direct costs of producing a product or providing a service is called

A) gross profit
B) gross profit margin
C) net profit
D) net profit margin
E) cost of goods sold

Question 58

Which one of the following components is not a standard component of a sound business model?

A) produce low-cost products
B) generate revenues
C) make profits
D) produce free cash flows

Question 59

Developing new and delivering high-quality products or services that command higher prices and margins best describes strong

A) marketing practices
B) financial practices
C) operating practices
D) management practices

Question 60

Which one of the following is not a part of the VOS indicator?

A) industry/market considerations
B) pricing/profitability considerations
C) financial/harvest considerations
D) management team considerations
E) location/profitability considerations

Question 61

Determine gross profit of a venture with the followingfinancial information: cost of goods sold = $30,000; net profit = $17,000; asset turnover = 1.6; return on assets 32%

A) $85,000
B) $72,000
C) $55,000
D) $38,000

Question 62

In the Kauffman Center study of best practices of high-growth, high-performance firms, which of the following practices was not included?

A) marketing practices
B) financial practices
C) management practices
D) production/operations practices

Question 63

Determine the return on assets ROA) for a venture with the following financial information: revenues = $500,000; net profit = $70,000; and asset turnover = 2.00 times.

A) 10%
B) 14%
C) 20%
D) 28%
E) 34%

Question 64

When composing the financial plans and projections section of a business plan, all of the following should be included except:

A) income statements and balance sheets
B) statement of cash flows
C) past and present dividend per share information
D) breakeven analysis
E) funding needs and sources

Question 65

A written document that describes the proposed venture in terms of the product or service opportunity, current resources, and financial projections is called a:

A) financial plan
B) business plan
C) entrepreneurial plan
D) survival plan

Question 66

A typical business plan includes all of the following sections except:

A) executive summary
B) business description
C) marketing plan and strategy
D) disclosure of pending litigation
E) operations and support

Question 67

The return on assets ROA) model measures:

A) revenues divided by net profit times the asset turnover
B) net profit margin times the equity multiplier
C) net profit margin times asset turnover
D) net profit divided by total assets multiplied by the asset turnover

Question 68

Determine the dollar amount of revenues for a venture with the following financial information: net profit = $60,000; assets turnover = 1.5 times; and return on assets 30%.

A) $300,000
B) $500,000
C) $800,000
D) $1,000,000
E) $1,200,000

Question 69

All else held constant, a higher asset turnover:

A) increases ROA
B) decreases ROA
C) has no effect on ROA
D) may raise or lower ROA, depending on how it affects revenues.

Question 70

Determine the dollar amount of total assets for a venture with the following financial information: revenues = $500,000; net profit = $70,000; and asset turnover = 2.00 times.

A) $100,000
B) $250,000
C) $375,000
D) $500,000
E) $650,000

Question 71

Determine the dollar amount of net profit for a venture with the following financial information: revenues = $500,000; return on assets = 20%; and asset turnover = 2.00 times.

A) $10,000
B) $25,000
C) $50,000
D) $60,000
E) $75,000

Question 72

A typical business plan includes all of the following except:

A) management team
B) financial plans and projections
C) risk and opportunities
D) timeline and milestones
E) initial public offering information

Question 73

Determine the asset intensity of a venture with the following financial information: net profit = $22,000; revenues = $132,000; return on assets 30%.

A) .05
B) .56
C) 1.8
D) 20

Question 74

Determine the cost of goods sold for a venture with the following financial information: revenues = $50,000; net profit margin = 20%;gross profit margin = 70%

A) $40,000
B) $35,000
C) $15,000
D) $10,000

Question 75

Return on assets can be stated as which of the following?

A) net after-tax profit divided by total assets
B) net profit margin times asset turnover
C) net cash flow divided by total assets
D) both a and b
E) both a and c

Question 76

When moving from entrepreneurial opportunities to new businesses, products, or services, which one of the following is not considered a component?

A) ideas
B) feasibility
C) business plan
D) harvest of venture

Question 77

The first two requirements of a sound business model are:

A) generate revenues, make profits
B) make profits, produce free cash flows
C) produce free cash flows for creditors and owners of the venture generate revenues and produce free cash flows

Question 78

In the venture life cycle, moving from the development stage to the startup stage frequently begins with the preparation of a business plan. The business plan is a written document that describes the proposed venture in all of the following terms except:

A) the proposed product or service opportunity
B) the accounting data for the last five years
C) current resources available to the venture
D) financial projections

Question 79

A firm's option to abandon a venture is an example of a:

A) bootstrapping option
B) financial option
C) survival option
D) real option

Question 80

The process involving minimizing the need for financial capital and finding unique sources for financing a new venture is referred to as:

A) mezzanine financing
B) financial bootstrapping
C) seed financing
D) startup financing