Question 1

The financial ratio used to evaluate the effectiveness of the pricing strategy and to calculate breakeven would be which of the following?
A) debt/equity ratio
B) working capital ratio
C) wages to sales ratio
D) inventory to sales ratio
E) gross profit margin

Accepted Answer

The gross profit margin is used to evaluate the effectiveness of a pricing strategy as it reflects the portion of revenue that exceeds the cost of goods sold, which is crucial for calculating breakeven points.

Question 2

Brenda's pro forma balance sheet shows assets of $18,000 and liabilities of $12,000. What is her owner's equity?
A) $30,000
B) $3,000
C) $6,000
D) -$6,000
E) need more information to calculate

Accepted Answer

Owner's equity is calculated as Assets minus Liabilities. Therefore, $18,000 (assets) - $12,000 (liabilities) = $6,000 (owner's equity).

Question 3

Jack plans to start his new business with $10,000 in savings from his full-time job, and a bank loan of $15,000 for his equipment. What will his owner's equity be on the pro forma balance sheet?
A) $10,000
B) $25,000
C) $5,000
D) $7,500
E) need more information to calculate

Accepted Answer

Owner's equity is calculated as the owner's initial investment in the business, which in this case is Jack's $10,000 in savings. The bank loan does not affect owner's equity as it is a liability.

Question 4

Jack plans to start his new business with $10,000 in savings from his full-time job, a bank loan of $15,000 for his equipment, and his truck which he currently owns and has a value of $7,000. What will his owner's equity be on the pro forma balance sheet?
A) $10,000
B) $17,000
C) $22,000
D) $12,000
E) need more information to calculate

Accepted Answer

Owner's equity is calculated as the total assets minus total liabilities. Jack's assets include his savings ($10,000) and his truck ($7,000), totaling $17,000. The bank loan is a liability and does not affect owner's equity directly. Therefore, his owner's equity is $17,000.

Question 5

As defined in the text, items that are owned or available to be used in the venture operations are known as__________.
A) assets
B) liabilities
C) owner's equity
D) materials, inventory, and supplies
E) None of the answers apply.

Accepted Answer

Assets are items that are owned or available to be used in the venture operations.

Question 6

Current assets include _________________ and anything else that is expected to be converted into cash or consumed in the operation of the business during a period of one year or less.
A) assets
B) liabilities
C) owner's equity
D) materials, inventory, and supplies
E) cash

Accepted Answer

The answer of Current assets include _________________ and anything else...

Question 7

Fixed assets are those that are tangible and will be used ________________________.
A) immediately
B) over a long period of time.
C) For the owner's equity
D) To buy materials, inventory, and supplies
E) cash

Accepted Answer

Fixed assets are long-term tangible assets that a company uses in its operations over a long period of time, such as buildings, machinery, and equipment.

Question 8

When preparing a balance sheet, the value recorded for an asset is __________.
A) the current market value of the item
B) the replacement cost of the item
C) the planned selling price for the item
D) the amount actually paid for the item
E) None of the answers apply.

Accepted Answer

The value recorded for an asset on a balance sheet is typically the historical cost, which is the amount actually paid for the item.

Question 9

As defined in the text, cash and other items that are expected to be converted into cash or consumed in the operation of the business during a period of one year or less are known as __________.
A) current assets
B) current liabilities
C) consumables
D) inventories
E) None of the answers apply.

Accepted Answer

Current assets are items that are expected to be converted into cash or consumed within one year or less.

Question 10

The financial ratio that is used to monitor the sales rate of a business would be which of the following?
A) debt/equity ratio
B) working capital ratio
C) wages to sales ratio
D) inventory to sales ratio
E) gross profit margin

Accepted Answer

The inventory to sales ratio is used to monitor how quickly inventory is being sold, which directly relates to the sales rate of a business.

Question 11

Fixed assets are those that __________.
A) are tangible
B) will be used over a long period of time
C) include cash
D) are tangible and will be used over a long period of time
E) All of the answers are correct.

Accepted Answer

Fixed assets are tangible and will be used over a long period of time, such as machinery, buildings, and equipment.

Question 12

The financial ratio that is considered crucial for restaurants, fast-food outlets, and construction firms would be which of the following?
A) debt/equity ratio
B) working capital ratio
C) wages to sales ratio
D) inventory to sales ratio
E) gross profit margin

Accepted Answer

The wages to sales ratio is crucial for labor-intensive industries like restaurants, fast-food outlets, and construction firms, as it helps in assessing how much of the revenue is being spent on labor costs, which is a significant expense in these sectors.

Question 13

The financial ratio that indicates a company's ability to pay its short-term debts would be which of the following?
A) debt/equity ratio
B) working capital ratio
C) wages to sales ratio
D) inventory to sales ratio
E) gross profit margin

Accepted Answer

The working capital ratio, also known as the current ratio, measures a company's ability to pay its short-term liabilities with its short-term assets.

Question 14

Liabilities: Although prompt payment of what is owed (payables) establishes good credit ratings and a good relationship with suppliers, it is often necessary to delay payments of bills in order to____________________________.
A) Use those liabilities due for payment within a year
B) everything owed to creditors
C) more effectively manage cash flow.
D) those liabilities the business intends to pay within the next month
E) None of the answers apply.

Accepted Answer

The answer of Liabilities: Although prompt payment of what is...

Question 15

A business attempting to manage its cash flow might employ which of the following tactics?
A) delay paying its creditors
B) make an effort to collect from its customers
C) buy on credit whenever possible
D) offer discounts for customers willing to pay cash
E) All of the answers are correct.

Accepted Answer

All the tactics listed can help manage cash flow: delaying payments to creditors, collecting from customers, buying on credit, and offering cash discounts can all improve cash flow management.

Question 16

A business would want to pay its creditors promptly for which of the following reasons?
A) to establish a good credit rating
B) to take advantage of any early payment discounts or rebates offered
C) to develop a good relationship with suppliers
D) to establish a good credit rating and to develop a good relationship with suppliers
E) All of the answers are correct.

Accepted Answer

Paying creditors promptly can help a business establish a good credit rating, take advantage of early payment discounts, and develop a good relationship with suppliers, making all the options correct.

Question 17

Banks track several "ratios"when evaluating new businesses. One of those ratios decreases over time: which ratio would that be?
A) debt/equity ratio
B) working capital ratio
C) wages to sales ratio
D) inventory to sales ratio
E) gross profit margin

Accepted Answer

The answer of Banks track several "ratios"when evaluating new businesses....

Question 18

If the total fixed costs are $850,000, the selling price is $110 and the variable cost per unit is $25, what is the breakeven volume?
A) 17,000 units
B) 10,000 units
C) 7,000 units
D) 1,000 units
E) need more information to calculate

Accepted Answer

The breakeven volume is calculated by dividing the total fixed costs by the contribution margin per unit (selling price - variable cost per unit). Here, it is $850,000 / ($110 - $25) = 10,000 units.

Question 19

The breakeven point tells the entrepreneur __________.
A) when the business begins to make a profit
B) the volume of sales at which the business will neither make a profit nor incur a loss
C) the value of sales needed to cover total variable and fixed expenses
D) the volume of sales at which the business will neither make a profit nor incur a loss and the value of sales needed to cover total variable and fixed expenses
E) None of the answers apply.

Accepted Answer

The breakeven point indicates both the volume of sales at which the business will neither make a profit nor incur a loss and the value of sales needed to cover total variable and fixed expenses.

Question 20

The major weakness in calculating the break-even lies in determining whether a cost is fixed or__________________________.
A) depreciation
B) commissions
C) variable
D) Commissions and raw materials
E) All of the answers are correct.

Accepted Answer

The major weakness in calculating the break-even point is distinguishing between fixed and variable costs. Variable costs change with production levels, unlike fixed costs.

Quiz 7: The Business Plan: Creating and Starting the Venture

The financial ratio used to evaluate the effectiveness of the pricing strategy and to calculate breakeven would be which of the following?

Brenda's pro forma balance sheet shows assets of $18,000 and liabilities of $12,000. What is her owner's equity?

Jack plans to start his new business with $10,000 in savings from his full-time job, and a bank loan of $15,000 for his equipment. What will his owner's equity be on the pro forma balance sheet?

Jack plans to start his new business with $10,000 in savings from his full-time job, a bank loan of $15,000 for his equipment, and his truck which he currently owns and has a value of $7,000. What will his owner's equity be on the pro forma balance sheet?

As defined in the text, items that are owned or available to be used in the venture operations are known as__________.

Current assets include _________________ and anything else that is expected to be converted into cash or consumed in the operation of the business during a period of one year or less.

Fixed assets are those that are tangible and will be used ________________________.

When preparing a balance sheet, the value recorded for an asset is __________.

As defined in the text, cash and other items that are expected to be converted into cash or consumed in the operation of the business during a period of one year or less are known as __________.

The financial ratio that is used to monitor the sales rate of a business would be which of the following?

Fixed assets are those that __________.

The financial ratio that is considered crucial for restaurants, fast-food outlets, and construction firms would be which of the following?

The financial ratio that indicates a company's ability to pay its short-term debts would be which of the following?

Liabilities: Although prompt payment of what is owed (payables) establishes good credit ratings and a good relationship with suppliers, it is often necessary to delay payments of bills in order to____________________________.

A business attempting to manage its cash flow might employ which of the following tactics?

A business would want to pay its creditors promptly for which of the following reasons?

Banks track several "ratios"when evaluating new businesses. One of those ratios decreases over time: which ratio would that be?

If the total fixed costs are $850,000, the selling price is $110 and the variable cost per unit is $25, what is the breakeven volume?

The breakeven point tells the entrepreneur __________.

The major weakness in calculating the break-even lies in determining whether a cost is fixed or__________________________.