Question 1

For the most meaningful interpretation, the small business owner should compare her/his firm's average collection period to ________.

Accepted Answer

A) other businesses in the same geographic area 
B) a direct competitor 
C) the universal standard of 25 days 
D) the average for the industry and the firm's credit terms 
A) other businesses in the same geographic area 
B) a direct competitor 
C) the universal standard of 25 days 
D) the average for the industry and the firm's credit terms

Question 2

Creating projected (pro forma)financial statements would allow a business owner to answer which of the following questions?

Accepted Answer

A) What profit can my business expect to achieve? 
B) What sales level must my business reach if our targeted profit is X dollars? 
C) What fixed and variable expenses can my business expect to incur at our targeted sales level? 
D) All of the above 
A) What profit can my business expect to achieve? 
B) What sales level must my business reach if our targeted profit is X dollars? 
C) What fixed and variable expenses can my business expect to incur at our targeted sales level? 
D) All of the above

Question 3

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss, and lets the business owner know the minimum level of activity required to keep the firm in operation.

Accepted Answer

A) True 
 B)False

Question 4

The ________ ratio measures a company's ability to generate sales in relation to its assets.

Accepted Answer

A) net sales-to-working capital 
B) net sales to total assets 
C) average collection period 
D) average inventory turnover 
A) net sales-to-working capital 
B) net sales to total assets 
C) average collection period 
D) average inventory turnover

Question 5

A company's average collection period ratio tells the average number of days it takes to collect its accounts receivable.

Accepted Answer

A) True 
 B)False

Question 6

A high inventory turnover ratio relative to the industry average could mean that a business has too little inventory and is experiencing stockouts.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the following information to answer the question(s)regarding Port Royal:
Net Sales $927,641
Gross Profit $301,483
Net Profit $48,457
Total Assets $203,869
Total Liabilities $74,325
-Port Royal's debt-to-net worth ratio is ________.

Accepted Answer

A) 0.36:1 
B) 0.08:1 
C) 1.57:1 
D) 0.57:1 
A) 0.36:1 
B) 0.08:1 
C) 1.57:1 
D) 0.57:1

Question 8

________ ratios indicate how efficiently the small firm is being managed.

Accepted Answer

A) Liquidity 
B) Profitability 
C) Leverage 
D) Operating 
A) Liquidity 
B) Profitability 
C) Leverage 
D) Operating

Question 9

Which of the following is an assumption of break-even analysis?

Accepted Answer

A) Fixed expenses remain constant for all levels of sales volume. 
B) Variable expenses change in direct proportion to changes in sales volume. 
C) Changes in sales volume have no effect on unit sales price. 
D) All of the above 
A) Fixed expenses remain constant for all levels of sales volume. 
B) Variable expenses change in direct proportion to changes in sales volume. 
C) Changes in sales volume have no effect on unit sales price. 
D) All of the above

Question 10

Leverage ratios measure the financing supplied by the firm's owner against that supplied by his creditors.

Accepted Answer

A) True 
 B)False

Question 11

Comparing a company's current income statement to those of prior accounting periods rarely reveals valuable information about key trends.

Accepted Answer

A) True 
 B)False

Question 12

Mini-Case 12-4: Calculating the Break-even Point
A small manufacturer plans to sell tents for $120 each. The variable cost for each tent is $90. Fixed costs for the process are estimated to be $36,000. How many tents must the company sell to break-even?
-Suppose that the manufacturer desires a profit of $9,000 on this product. How many units must be sold?

Accepted Answer

Price/Unit $120
Variable Cost/Unit $90
F

Question 13

On a projected income statement, a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the following break-even chart to answer the question(s)below:
  
-Line T is the ________ line, while line S is the ________ line.

Accepted Answer

A) total revenue; total expense 
B) total expense; total revenue 
C) fixed cost; variable cost 
D) variable cost; fixed cost 
A) total revenue; total expense 
B) total expense; total revenue 
C) fixed cost; variable cost 
D) variable cost; fixed cost

Question 15

As a company's debt-to-net worth ratio approaches 1:1, its creditors' interest in that business approaches that of the owners.

Accepted Answer

A) True 
 B)False

Question 16

Help Jim compute the break-even point for his brake service.

Accepted Answer

Contribution Margin:

Question 17

List the 12 key ratios outlined in the text and explain the type of information they provide the small business owner.

Accepted Answer

Students should select from the followin

Question 18

The most common mistake entrepreneurs make when preparing pro forma (projected)financial statements for their companies is being overly pessimistic in their financial plans.

Accepted Answer

A) True 
 B)False

Question 19

Service companies spend the greatest percentage of their sales revenue on cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 20

A company with a low debt-to-net worth ratio has less capacity to borrow than a company with a high debt-to-net worth ratio.

Accepted Answer

A) True 
 B)False

For the most meaningful interpretation, the small business owner should compare her/his firm's average collection period to ________.

Creating projected (pro forma)financial statements would allow a business owner to answer which of the following questions?

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss, and lets the business owner know the minimum level of activity required to keep the firm in operation.

The ________ ratio measures a company's ability to generate sales in relation to its assets.

A company's average collection period ratio tells the average number of days it takes to collect its accounts receivable.

A high inventory turnover ratio relative to the industry average could mean that a business has too little inventory and is experiencing stockouts.

Refer to the following information to answer the question(s)regarding Port Royal: Net Sales $927,641 Gross Profit $301,483 Net Profit $48,457 Total Assets $203,869 Total Liabilities $74,325 -Port Royal's debt-to-net worth ratio is ________.

________ ratios indicate how efficiently the small firm is being managed.

Which of the following is an assumption of break-even analysis?

Leverage ratios measure the financing supplied by the firm's owner against that supplied by his creditors.

Comparing a company's current income statement to those of prior accounting periods rarely reveals valuable information about key trends.

On a projected income statement, a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

Refer to the following break-even chart to answer the question(s)below: -Line T is the line, while line S is the line.

As a company's debt-to-net worth ratio approaches 1:1, its creditors' interest in that business approaches that of the owners.

Help Jim compute the break-even point for his brake service.

List the 12 key ratios outlined in the text and explain the type of information they provide the small business owner.

The most common mistake entrepreneurs make when preparing pro forma (projected)financial statements for their companies is being overly pessimistic in their financial plans.

Service companies spend the greatest percentage of their sales revenue on cost of goods sold.

A company with a low debt-to-net worth ratio has less capacity to borrow than a company with a high debt-to-net worth ratio.

The Foundations of Entrepreneurship

Ethics and Social Responsibility: Doing the Right Thing

Creativity and Innovation: Keys to Entrepreneurial Success

Conducting a Feasibility Analysis and Designing a Business Model

Crafting a Business Plan and Building a Solid Strategic Plan

Forms of Business Ownership

Buying an Existing Business

Franchising and the Entrepreneur

Building a Powerful Bootstrap Marketing Plan

E-Commerce and the Entrepreneur

Pricing and Credit Strategies

Managing Cash Flow

Choosing the Right Location and Layout

Sources of Financing: Equity and Debt

Global Aspects of Entrepreneurship

Building a New Venture Team and Planning for the Next Generation

Filters

Exam 12: Creating a Successful Financial Plan

For the most meaningful interpretation, the small business owner should compare her/his firm's average collection period to ________.

Creating projected (pro forma)financial statements would allow a business owner to answer which of the following questions?

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss, and lets the business owner know the minimum level of activity required to keep the firm in operation.

The ________ ratio measures a company's ability to generate sales in relation to its assets.

A company's average collection period ratio tells the average number of days it takes to collect its accounts receivable.

A high inventory turnover ratio relative to the industry average could mean that a business has too little inventory and is experiencing stockouts.

Refer to the following information to answer the question(s)regarding Port Royal: Net Sales $927,641 Gross Profit $301,483 Net Profit $48,457 Total Assets $203,869 Total Liabilities $74,325 -Port Royal's debt-to-net worth ratio is ________.

________ ratios indicate how efficiently the small firm is being managed.

Which of the following is an assumption of break-even analysis?

Leverage ratios measure the financing supplied by the firm's owner against that supplied by his creditors.

Comparing a company's current income statement to those of prior accounting periods rarely reveals valuable information about key trends.

On a projected income statement, a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

Refer to the following break-even chart to answer the question(s)below: -Line T is the ________ line, while line S is the ________ line.

As a company's debt-to-net worth ratio approaches 1:1, its creditors' interest in that business approaches that of the owners.

Help Jim compute the break-even point for his brake service.

List the 12 key ratios outlined in the text and explain the type of information they provide the small business owner.

The most common mistake entrepreneurs make when preparing pro forma (projected)financial statements for their companies is being overly pessimistic in their financial plans.

Service companies spend the greatest percentage of their sales revenue on cost of goods sold.

A company with a low debt-to-net worth ratio has less capacity to borrow than a company with a high debt-to-net worth ratio.

The Foundations of Entrepreneurship

Ethics and Social Responsibility: Doing the Right Thing

Creativity and Innovation: Keys to Entrepreneurial Success

Conducting a Feasibility Analysis and Designing a Business Model

Crafting a Business Plan and Building a Solid Strategic Plan

Forms of Business Ownership

Buying an Existing Business

Franchising and the Entrepreneur

Building a Powerful Bootstrap Marketing Plan

E-Commerce and the Entrepreneur

Pricing and Credit Strategies

Managing Cash Flow

Choosing the Right Location and Layout

Sources of Financing: Equity and Debt

Global Aspects of Entrepreneurship

Building a New Venture Team and Planning for the Next Generation

Filters

Refer to the following break-even chart to answer the question(s)below: -Line T is the line, while line S is the line.