Q&A Hero

Q: Microsoft Excel is a software package that includes manufacturing, order entry, and billing functions and it is usually too expensive for start-up firms.

Q: Using a spreadsheet software package is helpful when developing budgets as it helps to gauge the impact of different financial scenarios.

Q: Inventory is considered a source of funds because of the revenue it brings in.

Q: Depreciation is considered a source of funds because it does not represent an out-of-pocket expense.

Q: Pro forma sources and applications of funds summarizes all the projected sources of funds available to the venture and how these funds will be disbursed.

Q: The purpose of the pro forma sources and applications of funds statement is to show the relationship between revenue and expenses.

Q: Rent and insurance are examples of variable costs.

Q: Sales in excess of the break-even point will result in a profit, as long as the selling price remains above the cost to produce each unit.

Q: As long as the selling price is less than the variable cost per unit, some contribution will be made to cover fixed costs.

Q: Break-even is that volume of sales at which there are neither profits nor losses.

Q: Break-even analysis is a technique to determine the total liabilities of the firm.

Q: Owner equity is the excess of all assets over all liabilities.

Q: Profit from the business will be included on the balance sheet in the assets section.

Q: Any amount due within a year is considered a current liability.

Q: Cash is a current asset.

Q: Assets represent the net worth of the firm.

Q: The pro forma balance sheet depicts the condition of the business at one point in time.

Q: When projecting cash flows for the pro forma cash flow statement, it is important to be conservative in the estimates.

Q: In projecting cash flows the most difficult problem is in determining the exact amount of monthly receipts and disbursements.

Q: Large positive cash flows usually occur in the first months of a new venture.

Q: The indirect method of projecting cash flow uses a simple determination of cash in less cash out.

Q: The indirect method of projecting cash flow is the most popular.

Q: Many profitable firms fail because of lack of cash.

Q: Depreciation is considered a cash outlay, not an expense.

Q: Cash flow is the same thing as profit.

Q: Cash flow is the result of subtracting expenses from sales.

Q: A reasonable profit that is earned with conservative estimates is not considered to be an initial success for a new venture.

Q: When estimating expenses for the pro format income statement, it is best to be conservative.

Q: For the Internet start-up, capital budgeting and operating expenses will tend to be consumed by equipment purchasing or leasing, inventory, and advertising expenses.

Q: In projecting the operating expenses for the second and third year, it is helpful to first look at those expenses that will likely change over time.

Q: The cost of goods sold expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales.

Q: Selling expense is an expense that can be expected to remain stable over time.

Q: To satisfy outside investors, the financial plan will need three years of projected financial data.

Q: Costs of goods sold should be calculated using actual cost figures; using industry standard figures is too inaccurate.

Q: In an Internet start-up, advertising costs will be extensive to create awareness of the website.

Q: The first step in preparing a pro forma income statement is to separate fixed and variable costs.

Q: Capital budgeting and decision making is complicated and therefore use of an accountant is recommended.

Q: Capital budgets project expenditures on new equipment, vehicles, computers, or new facilities.

Q: An entrepreneur focuses on the operating costs before completion of the sales budget.

Q: When developing operating and capital budgets, the entrepreneur can seek advice from experts, but should retain the final say so.

Q: What is a pro forma sources and applications of funds statement?Give examples of sources and used of funds.

Q: Identify the basic formula of a balance sheet and give an example of an item that might fall under each major component of the formula.

Q: In relation to calculating a break-even point, identify two costs that are considered fixed and two costs considered variable.

Q: Define the contribution margin and its importance.

Q: An entrepreneur is trying to conduct a break-even analysis. Each product will sell for a price of $19.95. The entrepreneur has estimated the following costs:A. Rent $1000 per monthB. Direct labor per unit will be $3 per unitC. Salaries will be $500 per weekD. Raw materials will cost $1 per unit

Q: Define capital budgeting.

Q: Which of the following software programs is most widely used by entrepreneurs? A.Quickbooks B.Vision Point C.Peachtree D.all of these.

Q: Financial projections to assess the impact of different scenarios are calculated using: A.a spreadsheet program. B.an inventory management program. C.the Internet. D.a graphics program.

Q: Which of the following would be a source of funds? A.An equipment purchase B.Retiring a long term liability C.Inventory D.Personal funds of founders

Q: Which of the following would be an application of funds? A.Decrease in assets. B.Increase in turnover. C.Paying dividends. D.Increase in liabilities.

Q: _________ is(are) added back to the pro forma sources and applications of funds statement because it does not represent and out-of-pocket expense. A.Inventory B.Depreciation C.Dividends D.Equipment purchases

Q: A _____________ summarizes all the projected sources and applications of funds available to the venture and how these funds will be disbursed. A.Pro forma income statement B.Pro forma sources and applications of funds statement C.Break-even analysis D.Cash flow statement

Q: The contribution margin is: A.Selling price minus variable cost per unit. B.Selling price minus total fixed costs. C.Variable cost per unit plus selling price. D.Selling price minus total costs.

Q: If the total fixed costs are $850,000, the sale price is $110 and the variable cost per unit is 25, what is the breakeven volume? A.17,000 B.10,000 C.7,000 D.1,000

Q: Which of the following is likely to be a fixed cost? A.Materials B.Commissions C.Depreciation D.Direct labor

Q: As long as the selling price is greater than the _______________ cost per unit, some contribution can be made to cover ________________. A.fixed; variable costs B.variable; fixed costs C.total; expenses D.fixed; negative cash flow

Q: The marginal contribution is defined as: A.selling price per unit minus variable cost per unit B.total fixed costs minus selling price per unit C.variable cost per unit minus the selling price per unit D.total fixed costs plus total variable costs

Q: ______ is the volume of sales needed to cover total variable and fixed costs. A.Cash flow B.Depreciation C.Revenue D.Breakeven

Q: Discuss the six main functions of a board of directors.

Q: Identify the four important considerations/strategies in recruiting and assembling an effective team and organizational culture outlined in the text.

Q: The design of the organization will be the entrepreneur's formal and explicit indication to the members of the organization as to what is expected of them. Typically these expectations can be grouped into five areas, identify and describe them.

Q: What are the main characteristics of an LLC?

Q: Discuss the main advantages of an LLC over an S-Corp.

Q: Discuss the advantages and disadvantages of an S-Corporation.Some of the advantages of the S corporation are as follows:A. Capital gains or losses from the corporation are treated as personal income or losses by the shareholders on a pro rata basis (determined by number of shares of stock held). The corporation is thus not taxed.B. Shareholders retain the same limited liability protection as the C corporation.C. The S corporation is not subject to a minimum tax, as is the C corporation.D. Stock may be transferred to low-income-bracket family members (children must be 14 years or older).E. Stock may be voting or nonvoting.F. This form of business may use the cash method of accounting.G. Corporate long-term capital gains and losses are deductible directly by the shareholders to offset other personal capital gains or losses.

Q: Identify the nine areas an entrepreneur should consider in choosing a legal form of organization.

Q: Compensation for board members can take the form of all of the following except: A.perks, such as vacations. B.stock. C.stock options. D.cash payments.

Q: The difference between a board of directors and a board of advisors is that: A.the board of advisors meets less frequently. B.the board of directors lacks voting authority. C.the board of directors is subject to less pressure of litigation. D.the board of advisors are compensated.

Q: The _________ imposes oversight responsibilities on members of the board of directors. A.Social Security Act B.Fair Labor Practices Act C.Taft-Hartley Act D.Sarbanes-Oxley

Q: A board of directors should not: A.have members with unlimited terms. B.have an odd number of members. C.be comprised of external advisors. D.be compensated with anything other than stock.

Q: The board of directors: A.lacks voting authority. B.has responsibilities to represent all shareholders. C.is less objective than the entrepreneur. D.are always volunteers and need not be compensated.

Q: To build a successful organization culture the entrepreneur: A.should focus and not try out different things. B.needs to remember that it is easier to change a person's attitude than it is to change the person's behavior. C.should spend extra time in the hiring process. D.must create a workplace where communication from the top down is encouraged.

Q: Which of the following is not one of the main functions of the management team according to text? A.Execute the business plan. B.Identify fundamental changes in the business plan as they occur. C.Make adjustments based on changes in the environment and market that will maintain profitability. D.Help the entrepreneur write the business plan.

Q: Our text tells us that much of an entrepreneur's time during start-up is spent: A.putting out fires. B.negotiating. C.delegating. D.allocating resources.

Q: In designing the organization: A.the initial design is usually complicated. B.poor design is a significant cause for business failure since the entrepreneur often performs all organization functions themselves. C.the entrepreneur easily transitions from a growing start-up to a growing, well managed business. D.as the workload increases the organizational structure will contract.

Q: The standard term of a limited liability company is: A.15 years. B.20 years. C.25 years. D.30 years.

Q: In a limited liability company: A.laws governing its formation differ from state to state. B.members may transfer their interests at any time. C.members are not allowed to share income, profit, expense, deduction, loss and credit among themselves. D.owners are called shareholders.

Q: In an S corporation: A.gains or losses of the business are separate from the personal income of the shareholder. B.shareholders retain unlimited liability. C.only one class of stock is permitted. D.most fringe benefits for shareholders can be deducted.

Q: S corporation status means: A.shareholders do not have limited liability. B.the corporation is subject to a minimum tax of 34 percent. C.consent by a majority of shareholders is required for the election of this form of business. D.the corporation pays no tax.

Q: A limited liability corporation: A.has unlimited liability. B.is automatically taxed as a partnership. C.is decreasing in popularity among venture capitalists. D.had been the most popular choice of organization structure by new ventures and small businesses.

Q: Which of the following ways of distributing the income of corporations is taxed twice? A.Bonus B.Salary C.Profit sharing D.Dividends