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

Recent corporate scandals involving the misrepresentation of financial information such as Enron Corp. and WorldCom had which of the following consequences?

Andrew McGee is an entrepreneur looking to start a business manufacturing picnic tables from a new plastic resin material made from recycled soda bottles. This new material is harder in consistency than wood, rustproof, and essentially indestructible, which would be an advantage for furniture left out in the elements on a year round basis. Andrew estimates that each table would use $15 in materials, and take two hours of labour to put together, for which he would charge a rate of $12 per hour. He also estimates that each table would use another $4.50 in miscellaneous materials and supplies such as screws, glue, nuts, bolts, and other shop items. To start the business, Andrew estimates that he would need to purchase $2,500 in equipment, and spend $1,500 in developing a sales brochure and website. Other costs related to running the business are estimated to be $1,000 per year for communications, $2,500 for vehicle expenses, insurance of $750 and $500 for employee benefits. In his market research, Andrew was able to find another firm making a similar product in the United States, who were selling the table for $75 retail. Andrew believed that he could easily get that for his tables, given the substantial product advantages his table provided. Based on this information, answer the following questions: A) Based on a selling price of $75, what is Andrew's gross profit per unit? B) What is Andrew's breakeven point in units, assuming all of his startup costs are expensed in the first year?

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

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 __________.

Debt to Equity ratio - what is it? Why is it important?

The major weakness in calculating the breakeven point of a business is in __________.

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

The most difficult problem with forecasting cash flows is __________.

The pro forma sources and applications of funds statement __________.

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?

To be accurate, amounts for the operating budget may come from which of the following sources?

A simple determination of cash received versus cash paid out is known as the __________ method to projecting cash flow.

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

Discuss the difference between profit and cash flow, and why this might be important to a new venture.

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?

As discussed in the text, when estimating sales revenue for the pro forma income statement, it is most important to __________.

Discuss the concept of breakeven analysis, how it is calculated, and what an entrepreneur might use this information for.

When preparing the pro forma income statement, the entrepreneur will develop the manufacturing budget first, as these costs are more certain.

Which of the following would be an application of funds?