Chapter 5 MM

CHAPTER 5
5-1. The corporation is the most common form of business ownership.

Answer: False LG: 1/LL: 1 Page: 1!
5-!. The three ma"or forms of business ownership in the #.$. are sole proprietorships%
partnerships% an& corporations.
Answer: True LG: 1/LL: 1 Page: 1!
5-. 'nce a business is establishe&% it(s almost impossible to change from one form
of business ownership to another.
Answer: False LG: 1/LL: 1 Page: 1!
5-5. A comparison of the three ma"or forms of business ownership shows that sole
proprietorships are usuall) the most &ifficult t)pe of business to establish.
Answer: False LG: 1/LL: 1 Page: 1*
5-+. The first step in starting a sole proprietorship is to fill out a proprietorship charter
application form an& file it with the state go,ernment.
5--. The profits of a sole proprietorship are ta.e& as the personal income of the
owner.
Answer: True LG: 1/LL: 1 Page: 1*
5-1/. A ma"or a&,antage of sole proprietorships is that an owner has limite& liabilit) for
the &ebts of his or her business.
5-1!. The &ebts of a business operate& as a sole proprietorship are consi&ere& to be
the personal &ebts of the owner of the business.
Answer: True LG: 1/LL: 1 Page: 1*-1
5-1*. A &rawbac0 of sole proprietorships is that the) usuall) ha,e limite& access to
a&&itional financial resources.
Answer: True LG: 1/LL: 1 Page: 1
5-1. An a&,antage of forming a sole proprietorship is that it allows the owner to ha,e
more time for leisure acti,ities.
Answer: False LG: 1/LL: 1 Page: 1
5-15. 1im wants to start a business. 2e is attracte& b) the i&ea of being his own boss%
an& wants to get starte& with a minimum of e.pense an& hassle. 2e is ,er)
confi&ent in his abilities% so he is not particularl) worrie& about financial ris0s. All
of these factors suggest that 1im woul& fa,or starting his business as a sole
proprietorship.
Answer: True LG: 1/LL: ! Page: 1*
3ationale: People who want to be their own boss often prefer to operate their
business% at least initiall)% as a sole proprietorship. Another a&,antage of the sole
proprietorship is that it is a relati,el) eas) an& ine.pensi,e form of business to
set up. 'ne &rawbac0 of a sole proprietorship is that the owner has unlimite&
liabilit). 2owe,er% 1im is not worrie& about ris0% so this woul& not appear to be a
ma"or problem for him.
5-1+. 4f a sole proprietorship fails% the owner ma) lose whate,er was in,este& in the
business% but the owner(s personal assets are not at ris0.
Answer: False LG: 1/LL: ! Page: 1*-1
3ationale: $ole proprietors ha,e unlimite& liabilit) for the &ebts of their business.
This means that if their business gets into financial trouble the) can lose their
personal assets.
5-15. A general partner can ta0e an acti,e role in the management of the business.
Answer: True LG: !/LL: 1 Page: 15
5-!/. All of the partners in a general partnership ha,e limite& liabilit) for the &ebts of
their firm.
Answer: False LG: !/LL: 1 Page: 15
5-!1. 4n a general partnership% all owners share in both management of the business
an& in the assumption of liabilit) for the firm(s &ebts.
5-!. A limite& partner is an owner who ta0es no management responsibilit) an& has
no liabilit) for losses be)on& the amount in,este&.
5-!6. Accor&ing to the #niform Partnership Act% the three 0e) elements of an) general
partnership are 718 shares of stoc0 to represent ownership% 7!8 limite& liabilit)%
an& 7*8 ease of ownership transfer.
5-!-. A recent stu&) showe& that partnerships are more li0el) to fail than sole
proprietorships.
Answer: False LG: !/LL: 1 Page: 1+
5-!5. A ma"or ob"ecti,e of limite& liabilit) partnerships 7LLPs8 is to limit each partner(s
personal liabilit) to the conse9uences of their own acts an& those of people
un&er their super,ision.
5-*!. 4n or&er to protect all parties an& minimi:e misun&erstan&ings among partners%
all terms of the partnership shoul& be spelle& out in writing.
5-**. 'ne a&,antage of a partnership is that there is a simple process for partners to
terminate their business.
5-*. ;ompare& to sole proprietorships% an a&,antage of partnerships is their abilit) to
obtain more financial resources.
5-*+. ;ompare& to sole proprietorships% partnerships offer the a&,antage of share&
management an& poole& 0nowle&ge.
Answer: True LG: !/LL: 1 Page: 15-1+
5-*6. A limite& partnership refers to a partnership set up for a temporar) purpose% such
as a real estate &e,elopment pro"ect.
5-*-. Te& an& <ar0 ha,e been partners in a &r) cleaning business for the past three
)ears. The) woul& li0e their brother To&& to "oin them. #nfortunatel)% partnership
law states that onl) two partners can participate in a partnership.
Answer: False LG: !/LL: ! Page: 15
3ationale: A partnership consists of two or more owners.
5-/. $haron Pebble an& Gilbert $tone ha,e "ust forme& a business partnership. #n&er
their arrangement% $haron will acti,el) manage the compan) an& assume
unlimite& liabilit) for the firm(s &ebts. Gilbert will in,est se,eral thousan& &ollars
of his mone) an& will share in the profits% but will not acti,el) manage the firm
an& will not ha,e liabilit) for losses be)on& his initial in,estment. $haron an&
Gilbert ha,e forme& a limite& partnership.
Answer: True LG: !/LL: ! Page: 15
3ationale: A limite& partnership consists of at least one general partner% who has
unlimite& liabilit)% an& at least one limite& partner% who can lose onl) what he or
she has in,este&. The limite& partner cannot acti,el) manage the partnership.
5-1. Alphon:o has agree& to become a partner in his brother(s new clothing store an&
has pro,i&e& */ percent of the startup capital for 3emora=s ;lothiers. $ince he
pro,i&e& */ percent of the mone) to start the firm% he is legall) entitle& to */
percent of an) the profits the firm earns &uring its first )ear of operations.
Answer: False LG: !/LL: ! Page: 1+-16
3ationale: The &i,ision of profits in a partnership is negotiable an& is not
necessaril) tie& to the amount of the initial in,estment.
5-!. 3on an& 1on want to go into business together. The) &o not want to bring in other
partners% but the) both want to a,oi& unlimite& liabilit) for an) &ebts incurre& b)
their new compan). 3on an& 1on can achie,e their aims b) organi:ing the firm as
a limite& partnership.
3ationale: All partnerships% inclu&ing limite& partnerships% must inclu&e at least
one general partner. The general partners in a limite& partnership must accept
unlimite& liabilit). Thus% if 3on an& 1on form a limite& partnership the) will either
ha,e to bring in another person to be the general partner% or one of them will
ha,e to be the general partner an& accept unlimite& liabilit).
5-. ;onnie is a general partner in a retail coo0ie store. 2er personal assets are
protecte& from the &ebts of the business.
3ationale: As a general partner% ;onnie assumes unlimite& liabilit) for the &ebts
of her business.
5-5. A con,entional corporation is a state-chartere& legal entit)% with authorit) to act
an& ha,e liabilit) separate from its owners.
Answer: True LG: */LL: 1 Page: 15
5--. A corporation can raise financial capital b) selling shares of stoc0 to intereste&
in,estors.
Answer: True LG: */LL: 1 Page: 15/
5-5. $toc0hol&ers in a corporation must accept unlimite& liabilit) for the corporation=s
&ebts.
Answer: False LG: */LL: 1 Page: 15
5-51. >hen one of the owners of a corporation &ies% the corporation legall) ceases to
e.ist.
Answer: False LG: */LL: 1 Page: 15/
5-5!. ;orporations are eas) to start an& eas) to terminate.
5-5*. A &isa&,antage of corporations is that the) generall) re9uire e.tensi,e
paperwor0.
5-5+. The stoc0hol&ers in a corporation elect a boar& of &irectors to o,ersee the
compan)=s ma"or polic) issues.
Answer: True LG: */LL: 1 Page: 15/-151

5-56. $toc0hol&ers in a corporation ha,e limite& liabilit) for the &ebts of the
corporation.
5-5-. 'ne a&,antage of corporations is that the initial cost of setting them up is usuall)
lower than for other forms of ownership.
5-+1. 'ne reason 4n&i,i&uals incorporate is to obtain the a&,antage of limite& liabilit).
Answer: True LG: */LL: 1 Page: 15!
5-+!. 'ne a&,antage of an $ ;orporation is that the profits of the business are ta.e&
as regular personal income of the owners% thus a,oi&ing the problem of &ouble
ta.ation.
Answer: True LG: */LL: 1 Page: 15!-15*
5.+*. An) corporation can 9ualif) to be classifie& as an $ corporation as long as it fills
out an& files the proper paperwor0 with the appropriate state agenc) on an
annual basis.
Answer: False LG: */LL: 1 Page: 15*
5-+5. The a&,antages of limite& liabilit) companies are not a,ailable to pro,i&ers of
personal ser,ices li0e &octors an& law)ers.
Answer: False LG: */LL: 1 Page: 15*
5-+-. A limite& liabilit) compan) is similar to an $ corporation% but without the special
eligibilit) re9uirements.
Answer: True LG: */LL: 1 Page: 15*
5-+5. Limite& liabilit) companies ha,e both fle.ibilit) in ta. treatment of earnings an&
limite& liabilit) protection for owners.
Answer: True LG: */LL: 1 Page: 15*
5.61.Li0e stoc0hol&ers of a ; corporation% owners of a limite& liabilit) compan) 7LL;8
are free to sell their ownership without the appro,al of other members.
Answer: False LG: */LL 1 Page: 15
5-6!. 'wners of limite& liabilit) companies 7LL;s8 must pa) self-emplo)ment ta.es on
an) profits the) earn.
5-6. ?r. >right is intereste& in incorporating as an in&i,i&ual. >hile this is legall)
possible% there are reall) no a&,antages to &oing so.
Answer: False LG: */LL: ! Page: 15!
3ationale: <an) in&i,i&uals choose to incorporate to obtain limite& liabilit). 4n
some cases% the) ma) also recei,e ta. sa,ings b) &oing so.
5-65. @utt) ?ough is a small chain of &onut shops that is currentl) owne& an& operate&
b) a group of se,en partners. The owners thin0 that their chain has the potential
for rapi& growth% but se,eral of the partners are concerne& about the growing
financial ris0s that will accompan) this growth. 'ne wa) the partners coul& &eal
with this problem woul& be to incorporate their business.
Answer: True LG: */LL: ! Page: 15/
3ationale: Aecause the) can issue shares of stoc0 an& bon&s% an& often fin& it
easier to obtain loans from financial institutions% corporations usuall) ha,e easier
access to financial resources than unincorporate& businesses. Another
a&,antage of corporations is that the) pro,i&e their owners 7stoc0hol&ers8 with
the protection of limite& liabilit).
5.6+. >hen Brica >a)ne &eci&e& to start a business she chose to form it as a
corporation. This choice ensures that% as the foun&er an& incorporator of the
compan)% Brica will remain in control of the firm=s operations as long as she
wants% no matter how large or comple. the business becomes.
Answer: False LG: */LL: ! Page: 151
3ationale: 'ne potential &rawbac0 of incorporation is the possibilit) of conflict
between the entrepreneurs who originall) start a business an& the stoc0hol&ers
an& boar& of &irectors who ma) e,entuall) gain control. The te.t cites the cases
of 3o& ;anion of ;ompa9 an& $te,e 1obs of Apple ;omputer as e.amples of
entrepreneurs who were force& out of the ,er) companies the) foun&e&.
5-66. <o"o <otors is a rather small con,entional corporation with onl) !1!
stoc0hol&ers. Ble,en of the stoc0hol&ers are citi:ens of <e.ico who li,e in
<e.ico ;it)% an& eight more are citi:ens of ;ana&a who li,e in Toronto. <o"o
<otors shoul& organi:e as an $ corporation in or&er to sa,e on ta.es.
Answer: False LG: */LL: ! Page: 15*
3ationale: <o"o <otors &oes not satisf) the re9uirements for an $ corporation--it
has more than 65 stoc0hol&ers% some of whom are not #.$. citi:ens or
permanent resi&ents of the #nite& $tates.
5-6-. The partners at B&gar(s <icrobrewer) woul& li0e to switch to an $ corporation.
#nfortunatel)% their law)er has tol& them that the) &o not meet some of the
re9uirements necessar) to 9ualif) as an $ corporation. An alternati,e form of
business that woul& gi,e them similar a&,antages is a limite& liabilit) compan).
Answer: True LG: */LL: ! Page: 15*
3ationale: Limite& liabilit) companies offer man) of the same a&,antages as $
corporations% inclu&ing limite& liabilit) an& the possibilit) of ta.ation li0e a
partnership% without the special eligibilit) re9uirements re9uire& to 9ualif) for $
corporation status.
5-65. The owners of the new ;hillout 4ce ;ream ;ompan) ha,e chosen to organi:e
their business as a limite& liabilit) compan). 'ne &rawbac0 of this form of
ownership is that the owners will pa) higher ta.es on their earnings than a
regular corporation if their compan) grows rapi&l).
Answer: False LG: */LL: ! Page: 15*
3ationale: 4n terms of ta.es% a limite& liabilit) compan) offers the best of all
worl&s% allowing the owners to choose to be ta.e& as a partnership or a
corporation &epen&ing on which ta. rates woul& benefit them the most.
5--1. 4n a merger% two firms combine to form one compan).
Answer: True LG: /LL: 1 Page: 15+
5--*. An ac9uisition is when one compan) bu)s the propert) an& obligations of another
compan).
5--+. 4n a conglomerate merger% firms in the same in&ustr) merge to e.pan& their
share of the mar0et.
Answer: False LG: /LL: 1 Page: 156
5---. A merger between two businesses in &ifferent stages of relate& businesses is
0nown as a ,ertical merger.
5-51. >hen a group of in,estors ta0e a firm pri,ate% the) obtain all of the stoc0 for
themsel,es.
Answer: True LG: /LL: 1 Page: 156
5-5. 4n the past% the Aeir&erg=s <ar0ets an& Aronew=s Groceries ha,e been fierce
competitors in the grocer) mar0et. 2owe,er% the) recentl) issue& a "oint
announcement stating their &ecision to merge. The announcement "ustifie& the
propose& merger b) claiming that the resulting firm woul& ha,e more financial
resources% which woul& enable it to e.pan& ser,ices an& broa&en offerings to
consumers. This propose& merger is an e.ample of a hori:ontal merger.
Answer: True LG: /LL: ! Page: 156
3ationale: A merger between two firms in the same in&ustr)% such as two grocer)
store chains% is a hori:ontal merger.
5-5+. A ma"or ob"ecti,e of a le,erage& bu)out is to enable in,estors to gain control of a
compan) b) issuing new shares of ownership% thus minimi:ing the use of &ebt.
Answer: False LG: /LL: ! Page: 156
3ationale: Le,erage& bu)outs in,ol,e financing the ac9uisition of an organi:ation
through the use of &ebt financing.
5-56. 1ane Gramm is lea&ing a group of stoc0hol&ers who want to ta0e the Aigbu.
;orporation pri,ate. 4f 1ane(s group succee&s% Aigbu.(s stoc0 will no longer be
a,ailable to in,estors on the open mar0et.
3ationale: Ta0ing a firm pri,ate in,ol,es gaining control of a firm(s stoc0 so that it
is no longer a,ailable to in,estors on the open mar0et.
5-5-. The wor0ers at $crapp)=s <etal Fabrication% 4nc.% ha,e learne& that the firm is
about to close &own. The) ha,e &e,ise& a plan to use &ebt financing to bu) the
compan)(s stoc0 from current sharehol&ers with the intention of 0eeping the
compan) in business% thus sa,ing their "obs. This strateg) is calle& a le,erage&
bu)out.
3ationale: A le,erage& bu)out in,ol,es the use of &ebt financing to bu) the stoc0
of a compan). This is what the wor0ers are attempting to &o in this e.ample.
5-1//. A franchise agreement is an arrangement where a franchisor sells the rights to a
business name an& to sell a pro&uct or ser,ice within a gi,en territor) to a
franchisee.
Answer: True LG: 5/LL: 1 Page: 15-
5-1/1. A franchise ma) be organi:e& as a sole proprietorship% partnership% or
corporation.
5-1/5. 4n a franchise arrangement% ownership of all of the in&i,i&ual stores or outlets
remains in the han&s of the franchisor.
5-1/+. 'ne of the ma"or a&,antages of a franchise s)stem is the franchisee often gets
instant recognition from consumers.
5-1/6. Franchisees must follow more rules% regulations% an& proce&ures than if the)
operate& in&epen&entl) owne& businesses.
Answer: True LG: 5/LL: 1 Page: 1+/
5-1/-. The Ccoattail effectD refers to the bur&en of corporate rules an& regulations on
franchisees.
Answer: False LG: 5/LL: 1 Page: 1+/
5-111. The franchisee often must pa) the franchisor a share of profits or a percentage
commission on sales 0nown as a ro)alt).
Answer: True LG: 5/LL: 1 Page: 1+/
5-11+. Franchising in global mar0ets has &emonstrate& that high operating costs are
counterbalance& b) high profit opportunities.
Answer: True LG: 5/LL: 1 Page: 1+
5-1!1. Les is a franchisee in the Far 2ori:ons Tra,el Agenc) franchise. As a franchisee%
Les is guarantee& the right to retain all of his franchise(s profits.
Answer: False LG: 5/LL: ! Page: 1+/
3ationale: Franchisees usuall) pa) a ro)alt) to the franchisor. This ro)alt) is
sometimes e.presse& as a share of the franchisee(s profits.
5-1!!. Leanne is a franchisee in a restaurant chain. Than0s mainl) to her har& wor0 an&
people s0ills% her in&i,i&ual outlet is &oing 9uite well. 2owe,er% she has notice&
that se,eral other franchisees in the same chain ha,e let their businesses
&eteriorate% especiall) in terms of the 9ualit) of the foo& the) offer. Leanne
shoul& be ,er) concerne& about this tren&% since it e,entuall) coul& affect her
own business.
Answer: True LG: 5/LL: ! Page: 1+/
3ationale: The actions of less successful franchisees can hurt the success of
others in the same franchise. This is 0nown as the coattail effect.
5-1!5. A cooperati,e consists of people with similar nee&s who pool their resources for
mutual gain.
Answer: True LG: +/LL: 1 Page: 1+5
5-1!+. 4t is not unusual for members of cooperati,es to wor0 for an& help manage their
cooperati,e.
5-1!6. Farm cooperati,es were originall) establishe& to help farmers increase their
economic power b) acting as a group rather than as in&i,i&uals.
5-1**. The EEEEEEEEEEE is the most common form of business ownership.
A8 partnership.
A8 corporation.
;8 "oint ,enture.
?8 sole proprietorship.
Answer: ? LG: 1/LL: 1 Page: 1!
5-1*. A EEEEEEEEEEE is a business organi:ation that is owne&% an& usuall) manage&%
b) one person.
A8 close& corporation.
A8 subchapter $ corporation.
;8 sole proprietorship.
?8 limite& partnership.
Answer: ; LG: 1/LL: 1 Page: 1!
5-1*5. EEEEEEEEEEEE comprise about !/F of all businesses but account for about -6F
of all business receipts.
A8 ;orporations
A8 Partnerships
;8 $ole proprietorships
?8 Limite& liabilit) companies
Answer: A LG: 1/LL: 1 Page: 1!
5-1!. An) &ebts or &amages incurre& b) a firm organi:e& as a sole proprietorship are:
A8 the sole responsibilit) of the owner.
A8 limite& to the amount the owner has in,este& in the firm.
;8 pai& for out of a reser,e contingenc) fun& that sole proprietors are re9uire&
b) law to set up.
?8 normall) co,ere& b) liabilit) insurance.
Answer: A LG: 1/LL: 1 Page: 1*-1
5-1*. An entrepreneur who wishes to start a business with little &ela) or hassle% an&
who wants to be his or her own boss% shoul& organi:e the business as a:
A8 sole proprietorship.
A8 cooperati,e.
;8 ; corporation.
?8 general partnership.
Answer: A LG: 1/LL: ! Page: 1*
3ationale: Two a&,antages of sole proprietorships are ease of starting 7an&
en&ing8 an& being )our own boss.
CHAPTER 6
TRUE/FALSE
+-1.Bntrepreneurship in,ol,es accepting the ris0 of starting an& running a business.
+-!.Bntrepreneurship is another name for management.
+-*.<an) business starte& b) entrepreneurs ha,e grown into ma"or corporations
emplo)ing thousan&s of wor0ers.
Answer: True LG: 1/LL: 1 Page: 16 -165
+-.Bntrepreneurs are moti,ate& b) the &esire to earn a profit.
+-5. $uccessful entrepreneurs accept the ris0 of failure.
+-+. 4t is important for an entrepreneur to be highl) energetic.
+-6. Potential entrepreneurs woul& be well a&,ise& to surroun& themsel,es with
people who are smarter than the) are.
Answer: True LG: 1/LL: 1 Page: 166% Figure +.1
+--. Bntrepreneurial teams combine the creati,e mar0eting an& pro&uction i&eas of a
group of e.perience& people. .
+-5. <icropreneurs is a term use& to &escribe entrepreneurs who focus on the
continue& growth of their businesses.
Answer: False LG: 1/LL: 1 Page: 16-
+-1/. The most important &ifference between entrepreneurs an& micropreneurs is the
focus place& b) micropreneurs on balancing the &eman&s of wor0 an& famil).
+-11. <icropreneurs are moti,ate& b) a &esire to ha,e both a satisf)ing famil) life an&
rewar&ing wor0.
+-1!. >eb-base& businesses a,oi& the ris0 of failure face& b) tra&itional startup
businesses.
Answer: False LG: 1/LL: 1 Page: 1-1
+-1*. An intrapreneur is the creati,e person who starts an& manages a nonprofit
organi:ation.
Answer: False LG: 1/LL: 1 Page: 1-1
+-1. ;reati,e people wor0ing as entrepreneurs within a large organi:ation are calle&
intrapreneurs.
Answer: True LG: 1/LL: 1 Page: 1-1
+-15. The #.$. go,ernment offers Gin,estor ,isasG to attract more entrepreneurs.
Answer: True LG: 1/LL: 1 Page: 1-*
+-1+. Bnterprise :ones offer lower ta. rates an& go,ernment assistance to attract
pri,ate business in,estment.
Answer: True LG: 1/LL: 1 Page: 1-*
+-16. Bntrepreneurial teams increase the cooperation between mar0eting% pro&uction
an& other functional areas of a business ,enture
Answer: True LG: 1/LL: ! Page: 166
3ationale: 4n entrepreneurial teams% all members wor0 together to concei,e%
ma0e% an& mar0et a new pro&uct.
+-1-. H)lie is emplo)e& b) $treet >heels% a large corporation that pro&uces
accessories for scooters% bic)cles% an& other chil&ren(s ,ehicles. $he is a
creati,e force within the compan) an& has helpe& launch se,eral new successful
pro&ucts. H)lie is an e.ample of an intrapreneur.
Answer: True LG: 1/LL: ! Page: 1-1
3ationale: 4ntrapreneurs are creati,e people who wor0 within corporations to
launch new pro&ucts an& generate new profits.
+-15. The management of a nonprofit organi:ation is much the same as the
management of small an& large businesses.
Answer: True LG: !/LL: 1 Page: 1-
+-!/. 'f all nonfarm businesses in the #nite& $tates% almost 56 percent are consi&ere&
small b) the $mall Ausiness A&ministration 7$AA8 stan&ar&s.
+-!1. Large firms ha,e a greater abilit) to pro,i&e personali:e&% fast response
customer ser,ice than &o small business organi:ations.
Answer: False LG: !/LL: 1 Page: 1-5
+-!!. About -/ F of Americans fin& their first "obs in small businesses.
+-!*. The number of women owning small businesses has grown slowl).
Answer: False LG: !/LL: 1 Page: 1-
+-!. <an) small businesses list the lac0 of 9ualifie& wor0ers as one of their biggest
obstacles to growth.
+-!5. <ost business opportunities offer entrepreneurs high le,els of securit) an&
profits.
Answer: False LG: !/LL: 1 Page: 1-+
+-!+. The easiest businesses to start also ha,e the least growth potential an& the
greatest failure rates.
Answer: True LG: !/LL: 1 Page: 1-+
+-!6. >hile the first "ob for man) people is wor0ing for a small business% most of the
permanent new "obs are create& b) larger corporations.
Answer: False LG: !/LL: ! Page: 1-
3ationale: Bmplo)ment in large companies has been &eclining for man) )ears.
Iirtuall) all "ob growth is pro,i&e& b) small businesses.
+-!-. <arina has "ust complete& her business &egree. 2er best "ob search strateg)
woul& be to concentrate on loo0ing for wor0 with a ma"or corporation.
3ationale: <an) large firms are &ownsi:ing% an& ,irtuall) all "ob growth is
currentl) create& b) small businesses. 4f <aria focuses on "ob opportunities with
big firms% she is li0el) to limit her chances of fin&ing emplo)ment.
+-!5. 3enee% a manager at a small manufacturing firm% has offere& to help manage a
local branch of the J<;A. #nfortunatel)% 3enee will fin& that the s0ills ac9uire&
managing a small business will not be useful in managing a nonprofit
organi:ation.
3ationale: The s0ills nee&e& to manage small businesses% big businesses%
charities% churches% an& go,ernment agencies are ,er) similar.
+-*/. A close loo0 at the statistics in&icates that the lac0 of 9ualifie& wor0ers is a ma"or
obstacle to the growth of successful small businesses.
Answer: True LG: !/LL: ! Page: 1-
3ationale: 'ne 9uarter of the small businesses sur,e)e& list the lac0 of 9ualifie&
wor0ers as one of their biggest obstacles to growth.
+-*1. Tra&itionall) small business statistics classifie& the retirement of an owner of a
sole proprietorship as a business failure.
Answer: True LG: !/LL: ! Page: 1-5
3ationale: 3etirement an& change of the legal form of business 7i.e. partnership
to a corporation8 ha,e tra&itionall) been classifie& as a business failure.
Bconomist Aruce Hirchhoff conten&s that these misinterpretations of the statistics
ha,e greatl) o,ersta)e& the business failure rate.
+-*!. $mall businesses lac0 the resources to compete &irectl) with big businesses.
Answer: False LG: !/LL: ! Page: 1-5
3ationale: $mall businesses can often compete successfull) against big
businesses because the) are more nimble an& able to offer more personali:e&
customer ser,ice.
+-**.$haraf &eci&e& to wor0 for a floral &esign shop before opening her own shop. $he
will fin& that this was a waste of time as her wor0 is use& to ma0e someone else
successful.
Answer: False LG: */LL: ! Page: 1-6
3ationale: $haraf will gain ,aluable training an& insights into the floral &esign
business b) wor0ing for someone else. 2er e.perience shoul& re&uce her ris0s
an& help her operate more efficientl) when she starts her own business.
+-*.The personal character of an entrepreneur is irrele,ant to ban0ers when
&etermining the cre&it worthiness of business loan.
Answer: False LG: /LL: 1 Page: 15/
+-*5.$oftware &esigne& to help create business plans has pro,en to be of little ,alue
because of the great ,ariet) in the t)pes of businesses.
Answer: False LG: /LL: 1 Page: 15/
+-*+.Potential suppliers can be an e.cellent source of financing for a new business since
len&ing mone) to a new customer ma) be ,er) much in their own interest.
Answer: True LG: /LL: 1 Page: 15/
+-*6.$tate an& local go,ernments often act as ,enture capitalists.
Answer: False LG: /LL: 1 Page: 15!
+-*-.Ienture capitalists pro,i&e fun&s for small businesses as part of their philanthrop)
programs.
Answer: False LG: /LL: 1 Page: 15!
+-*5.As a result of corporate &ownsi:ing% <argo lost her "ob as the &irector of human
resources at a ma"or steel pro&ucer. 2owe,er% she too0 this opportunit) to
establish her own business pro,i&ing temporar) emplo)ees to area businesses.
<argo has li0el) foun& that:
A8 going into business for )ourself can 9uic0l) pro,i&e securit) an& profits.
A8 there aren(t man) women going into small business.
;8 the ser,ice sector is not an area of significant growth.
?8 successful big businesses often create profitable opportunities for small
businesses.
Answer: ? LG: !/LL: * Page: 1-5
3ationale: As big businesses &ownsi:e% the) often fin& that the) &o not alwa)s
ha,e the staff the) nee& an& are increasingl) contracting with small companies to
temporaril) fill their nee&s through outsourcing. That(s how it is in business. Aig
businesses &on(t ser,e all the nee&s of the mar0et. There is plent) of room for
small companies to ma0e a profit filing those niches.
+-/.For prospecti,e entrepreneurs% enrolling in an 4ntro&uction to Ausiness or $mall
Ausiness <anagement course offere& through their communit) college:
A8 is li0el) to be waste& time since college courses ten& to be too theoretical.
A8 can be helpful b) offering them an opportunit) to meet e.perience& small
business owners.
;8 woul& be most helpful after starting their business ,enture.
?8 woul& offer training e9ui,alent to two )ears of on-the-"ob e.perience.
Answer: A LG: */LL: ! Page: 1-6
3ationale: 'ne of the best things about small business courses offere& b)
communit) colleges is that the) can bring together entrepreneurs. The a&,ice
e.perience& entrepreneurs can share with those "ust getting starte& can be
in,aluable.
+-1.<oti,ate& b) his &esire to operate his own business% ;aleb is consi&ering the
purchase an e.isting business. As he carefull) weights this option% he is li0el) to
fin& that:
A8 ,er) few owners of small businesses ha,e an) interest in selling.
A8 his potential for success woul& greatl) impro,e if he starte& his own new firm.
;8 the ,alue of an e.isting business is &etermine& b) what the business owns%
what it earns% an& what ma0es it uni9ue.
?8 an) entrepreneur willing to sell their business is e.periencing serious
financial problems.
Answer: ; LG: */LL: ! Page: 1-5
3ationale: The ,alue of a firm is base& on three things: what it owns% what it
earns% an& what ma0es it uni9ue.
+-!.The business plan of a new entrepreneur shoul& inclu&e all of the following except:
A8 target mar0et.
A8 capital re9uire&.
;8 competiti,e a&,antages.
?8 names of emplo)ees.
Answer: ? LG: /LL: 1 Page: 1-5
+-*.After personal sa,ings% the ne.t largest source of capital for entrepreneurs has
been from
A8 large multinational ban0s.
A8 the $mall Ausiness A&ministration.
;8 state an& local go,ernments.
?8 in&i,i&ual in,estors.
Answer: ? LG: /LL: 1 Page: 15!
+-.>hich of the following go,ernment agencies is responsible for encouraging the
&e,elopment of small businessK
A8 $mall Ausiness A&ministration.
A8 Fe&eral Tra&e ;ommission.
;8 Bntrepreneur Assistance ;enter.
?8 Fe&eral <icroloan Authorit).
Answer: A LG: /LL: 1 Page: 15!
+-5.$mall business owners often struggle in attracting 9ualifie& wor0ers. >hich of the
following &oes not contribute to this problemK $mall firms offer:
A8 less attracti,e fringe benefits than offere& b) larger firms.
A8 lower wages than pai& b) large corporations.
;8 limite& room for a&,ancement.
?8 a lac0 of challenging "obs.
Answer: ? LG: /LL: 1 Page: 15
+-+.A goo& business plan will:
A8 focus on the big picture an& omit the small &etails of operating the business.
A8 &escribe all aspects of the business% inclu&ing pro&uct% the target mar0et% the
nature of the competition% an& the owners= resources an& 9ualifications.
;8 be purposefull) ,ague% since specifics can restrict creati,it) an& fle.ibilit).
?8 focus on the nature of the business an& the target mar0et% omitting personal
information about the owner in or&er to a,oi& personalit) issues.
Answer: A LG: /LL: ! Page: 1-5
3ationale: A business plan is a &etaile& written statement that &escribes the
nature of the business% the target mar0et% the a&,antages the business will ha,e
relati,e to competitors an& the resources an& 9ualifications of the owner.
+-6.>hen see0ing financial bac0ing from a ,enture capitalist% a small business owner
shoul& reali:e that the ,enture capitalist will:
A8 charge an interest rate that is much higher than an) other len&er.
A8 not be intereste& in the management of the business.
;8 e.pect an ownership sta0e in the compan) in e.change for the financial
bac0ing.
?8 &eman& that the mone) be repai& within 5/ &a)s or less.
Answer: ; LG: /LL: ! Page: 15!
3ationale: Ienture capitalists often as0 for a heft) ownership sta0e in a business
in e.change for the cash nee&e& to get that business starte&.
+--.A mar0et consists of potential bu)ers of a goo& or ser,ice. 2owe,er% for a mar0et
to e.ist:
A8 wholesalers an& retailers are in,ol,e& in the &istribution of the pro&uct.
A8 one firm must &ominate in sales an& pro&uct &e,elopment.
;8 people must ha,e unsatisfie& wants an& nee&s as well as a willingness an&
abilit) to bu).
?8 the pro&uct must be laborator) teste& an& appro,e& b) the Fe&eral Foo& an&
?rug A&ministration 7F?A8.
Answer: ; LG: /LL: ! Page: 15
3ationale: A mar0et consists of people who ha,e unsatisfie& wants an& both the
willingness an& the resources necessar) to bu) the goo& or ser,ice.
+-5.Aubba% a license& real estate bro0er% recei,e& notification that his application for a
business loan was &enie&. The ban0 refuse& his re9uest because he faile& to
pro,i&e a blueprint i&entif)ing the inten&e& target mar0et an& competiti,e
strateg). 4n or&er secure a ban0 loan Aubba e,i&entl) nee&s a:
A8 ban0ruptc) law)er.
A8 business plan.
;8 ,enture capitalist.
?8 loan a&,ocate.
Answer: A LG: /LL: * Page: 1-5
3ationale: A business plan pro,i&es a &etaile& written statement of the nature of
a firm% its target mar0et% its competiti,e a&,antages% an& the resources an&
9ualifications of its owner.
+-5/.As a EEEEEEEE 3ic0 searches for firms in nee& of a&&itional fun&ing to achie,e
their goals. 4n return for his in,estment% 3ic0 becomes a part owner in the
business.. 3ic0 operates as a7n8:
A8 in,estment anal)st.
A8 ,enture capitalist.
;8 corporate rai&er.
?8 securities tra&er.
Answer: A LG: /LL: * Page: 15!
3ationale: A ,enture capitalist is an in&i,i&ual or firm that pro,i&es startup capital
in e.change for a sta0e in the ownership of the business.
As a small business owner% Tani0a can(t affor& to pro,i&e her emplo)ees with the high
wages an& benefits offere& b) big corporations. 'ne wa) to retain her emplo)ees an&
create a high le,el of moti,ation woul& be to:
A8 threaten to fire her e.isting emplo)ees an& hire new wor0ers.
A8 a&opt a polic) of promoting the wor0ers who ha,e been emplo)e& the
longest.
;8 empower her emplo)ees to &e,elop their own i&eas
?8 hire onl) famil) members% since the) are more lo)al.
Answer: ; LG: /LL: * Page: 15
3ationale: <an) small firms moti,ate wor0ers b) creating challenging "obs an&
treating them respectfull).
+-51.'ne reason wh) man) #.$. small businesses are not in,ol,e& in e.porting is:
A8 there is a limite& mar0et for their pro&ucts.
A8 the go,ernment=s new homelan& securit) programs limit opportunities for
small businesses.
;8 man) of these firms &o not 0now how to get starte&.
?8 #.$. pro&ucts are percei,e& as inferior.
Answer: ; LG: 5/LL: 1 Page: 156
+-5!.>hich of the following best &escribes the opportunities a,ailable to small
businesses in international mar0etsK
A8 The worl& is a much larger% an& potentiall) more lucrati,e% mar0et than the
#.$. &omestic mar0et.
A8 The threat of terrorist acti,ities pre,ents small businesses from competing
internationall).
;8 <ost foreign bu)ers prefer to &eal with large% well-0nown corporations rather
than small businesses.
?8 2igher business costs eliminate the profit opportunities in global mar0ets.
Answer: A LG: 5/LL: ! Page: 156
3ationale: The #.$. has onl) about 5F of the worl&(s population% an& there is a
growing &eman& for American goo&s an& ser,ices. The ;ommerce ?epartment
reports that while onl) a small percentage of small businesses e.port% the
number of small businesses in,ol,e& in e.porting has triple& in the last &eca&e.
Pepp) is confi&ent that Pi::a >hirl will be a success% but onl) if he has enough
mone) to &o things right. $ince Pepp) has ,er) little personal wealth% he 0nows
he must obtain financial help. 4n or&er to be prepare& for meetings with ban0ers
an& potential in,estors% Pepp) shoul&:
A8 hire a public relations firm to &e,elop promotional materials.
A8 &e,elop a business plan.
;8 rea& a boo0 on entrepreneurship.
?8 create a partnership contract.
Answer: A LG: /LL: * Page: 1-1
3ationale: A business plan% which pro,i&es a &etaile& &escription of the new
business% is man&ator) when meeting with ban0ers an& in,estors.
CHAPTER 7
TRUE/FALSE
6-. To&a)=s wor0ers re9uire a &ifferent managerial st)le than wor0ers of pre,ious
eras.
Answer: True LG: 1/LL: 1 Page: !1!
6-5. The nee& to manage change has become increasingl) important with the
emphasis on global challenges an& opportunities.
6-+. Although &ownsi:ing has re&uce& the number of nonmanagerial "obs% it actuall)
has increase& the nee& for mi&&le managers.
Answer: False LG: 1/LL: 1 Page: !1!
6-6. >or0ers are becoming better e&ucate& an& more self-&irecte&.
6--. <anagement is the art of getting things &one through organi:ational resources.
6-!!. The four 0e) management functions are planning% organi:ing% lea&ing% an&
controlling.
Answer: True LG: !/LL: 1 Page: !1*-!1
6-!+.The management function that in,ol,es gui&ing% training% an& moti,ating others to
wor0 towar& the achie,ement of an organi:ation=s goals is calle& lea&ing.
Answer: True LG: !/LL: 1 Page: !1
6-!6. Planning is the function of management that in,ol,es anticipating future tren&s
an& &etermining the best strategies an& tactics to achie,e an organi:ation(s goals
an& ob"ecti,es.
Answer: True LG: !/LL: 1 Page: !1*
6-!5. Aeth has spent the last two hours going o,er some consumer sur,e)s to see how
well her compan) is achie,ing its goal of impro,ing customer satisfaction. Aeth(s
efforts are an e.ample of the controlling function of management.
Answer: True LG: !/LL: ! Page: !1
3ationale: ;ontrolling is the function concerne& with &etermining whether or not
an organi:ation is progressing towar& achie,ing its goals an& ob"ecti,es.
6-*!. 3ita is a manager of a me&ium-si:e& ser,ice compan). $he is currentl) in,ol,e&
in re&esigning her &epartment to ensure that emplo)ees an& other resources can
respon& more 9uic0l) an& efficientl) to the nee&s of its customers. 3ita=s efforts
are part of the organi:ing function of management.
Answer: True LG: !/LL: ! Page: !1*
3ationale: 'rgani:ing in,ol,es &esigning the structure of the organi:ation so that
resources can efficientl) achie,e the organi:ation=s ob"ecti,es. 'ne of the 0e)
ob"ecti,es to&a) is to fin& wa)s to organi:e businesses so that the) please the
customer.
6-*-. A ,ision is the o,erall e.planation of wh) an organi:ation e.ists an& where it is
tr)ing to hea&.
Answer: True LG: */LL: 1 Page: !15
6-*5. A mission statement outlines the fun&amental purposes of an organi:ation.
6-5. $>'T anal)sis helps firms i&entif) both competiti,e threats an& mar0et
opportunities.
Answer: True LG: */LL: 1 Page: !1+
6-6. Tactical planning &eals with setting long-range goals% while strategic planning
&e,elops the specific strategies nee&e& to achie,e the organi:ation(s tactical
goals.
Answer: False LG: */LL: 1 Page: !1+-!16
6--. $trategic planning &etermines the ma"or goals of the organi:ation.
Answer: True LG: */LL: 1 Page: !1+
6-51.;ontingenc) planning in,ol,es &e,eloping alternati,e courses of action to be use&
if the primar) plans &o not achie,e the &esire& results.
Answer: True LG: */LL: 1 Page: !1-
6-+!. $>'T anal)sis focuses onl) on the internal acti,ities of the firm% while other
anal)tical tools are use& to re,iew the e.ternal en,ironment in which the firm
operates.
Answer: False LG: */LL: ! Page: !1+
3ationale: $>'T stan&s for strengths% wea0nesses% opportunities an& threats.
>hile the strengths an& wea0nesses part of $>'T anal)sis focuses on internal
aspects of the organi:ation% the opportunities an& threats part of $>'T loo0s at
the e.ternal en,ironment in which the organi:ation operates.
6-6!. An organi:ational chart shows who is accountable for the completion of specific
wor0 an& who reports to whom.
Answer: True LG: /LL: 1 Page: !15
6-6+. $uper,isor) managers are those who &irectl) o,ersee the acti,ities of wor0ers
an& e,aluate their &ail) performance.
Answer: True LG: /LL: 1 Page: !!/
6-66. <i&&le managers usuall) are responsible for tactical planning an& controlling.
6-6-. The ;4'% ;''% an& ;F' are all management positions that woul& be classifie&
as being part of top management.
6-65. 4n this &a) of rapi&l) changing technolog)% technical s0ills are the most important
s0ills for all le,els of management.
Answer: False LG: /LL: 1 Page: !!1
6--5. The purpose of a cross-functional team is to train the members of a single
&epartment to perform the functions of other &epartments.
Answer: False LG: /LL: 1 Page: !!1
6--+. 'ne result of the tren& towar& self-manage& teams is that more planning%
organi:ing an& controlling are being &elegate& to lower-le,el managers.
Answer: True LG: /LL: 1 Page: !!1
6.-5. An)one who is affecte& b) an organi:ation=s policies an& pro&ucts is consi&ere&
to be a sta0ehol&er in that organi:ation.
Answer: True LG: /LL: 1 Page: !!!
6-1//. A 0e) to ha,ing an effecti,e staffing polic) is to recruit people much li0e the
people alrea&) wor0ing at the firm.
Answer: False LG: /LL: 1 Page: !!
6-1!+. The autocratic st)le of lea&ership can be ,er) effecti,e in emergenc) situations.
Answer: True LG: 5/LL: 1 Page: !!+
6-1!6. The traits use& b) autocratic lea&ers inclu&e warmth% frien&liness% an&
un&erstan&ing.
Answer: False LG: 5/LL: 1 Page: !!+
6-1!-. The traits that characteri:e participati,e lea&ers inclu&e fle.ibilit)% goo& listening
s0ills% an& empath).
Answer: True LG: 5/LL: 1 Page: !!+
6-1*. >hen businesses empower their emplo)ees% the role of a manager becomes
less that of a GbossG an& more that of a coach% counselor% or team pla)er.
Answer: True LG: 5/LL: 1 Page: !!--!!5
6-15+. 4n or&er to be effecti,e% performance stan&ar&s must be specific% attainable% an&
measurable.
Answer: True LG: +/LL: 1 Page: !*1-!*!
6-156. Accounting an& finance are important for control s)stems because the) pro,i&e
the numbers management nee&s to e,aluate progress.
Answer: True LG: +/LL: 1 Page: !*!
6-15-. B.ternal customers are those in&i,i&uals or units that recei,e ser,ices from other
units within the same organi:ation.
Answer: False LG: +/LL: 1 Page: !*!
6-1+/. A corporate scorecar& is a broa& measurement tool that in&icates a compan)(s
progress towar& its final &estination-profits.
Answer: True LG: +/LL: 1 Page: !**
6-165. Accor&ing to well-0nown management consultant Peter ?ruc0er% managers
pro,i&e:
A8 a &irection for their organi:ation an& lea&ership.
A8 technical 0now-how an& consistenc).
;8 scientific anal)sis of &ata an& philosophical insights into fun&amental
9uestions.
?8 rules an& regulations.
Answer: A LG: !/LL: 1 Page: !1*
6-16+. 'ne of the four primar) functions of management is:
A8 controlling.
A8 mar0eting.
;8 financing.
?8 &esigning.
Answer: A LG: !/LL: 1 Page: !1
6.1-5. As a manager% two of $)l,ia=s strengths are her abilit) to communicate goals
clearl)% an& her abilit) to gui&e% coach% an& moti,ate wor0ers. Aase& on these
strengths% EEEEEEEE is a management function that $)l,ia is li0el) to be goo& at
performing.
A8 controlling
A8 planning
;8 lea&ing
?8 organi:ing
Answer: ; LG: !/LL: ! Page: !1
3ationale: Lea&ing in,ol,es communicating% gui&ing% training% coaching% an&
moti,ating others to wor0 effecti,el) towar& achie,ing an organi:ation=s goals.
6-1-+. Aman&a% a regional manager for Flairol ;osmetics% has "ust seen a report
showing that sales in her region are lower than anticipate& so far this 9uarter. 2er
ne.t tas0 is to &etermine the reason for the &isappointing results an& fin& a wa)
to get sales up to their &esire& le,el. Aman&a(s efforts are part of the
EEEEEEEEEEEE function of management.
A8 controlling
A8 &irecting
;8 organi:ing
?8 planning
Answer: A LG: !/LL: * Page: !1
3ationale: ;ontrolling in,ol,es chec0ing to &etermine whether goals an&
ob"ecti,es are being met% an& ta0ing correcti,e action if the) are not.
6-1--. >hich of the following acti,ities is part of the planning function of a managerK
A8 Assigning a particular wor0er to &o a specific tas0.
A8 Loo0ing at mar0et forecasts to i&entif) future business opportunities an&
challenges.
;8 Praising a sales representati,e who has far e.cee&e& her monthl) sales
ob"ecti,es.
?8 ;on&ucting a "ob inter,iew with a potential new emplo)ee.
Answer: A LG: !/LL: * Page: !1*
3ationale: Planning in,ol,es anticipating tren&s% i&entif)ing opportunities an&
challenges% an& &e,ising strategies an& tactics that will help the firm achie,e its
goals an& ob"ecti,es.
6-1-5. >hich of the following acti,ities is part of the organi:ing function of a managerK
A8 Going o,er a sprea&sheet to anal):e some financial &ata.
A8 Teaching a new emplo)ee how to use a piece of office e9uipment.
;8 Gi,ing front-line wor0ers a&&itional resources nee&e& to pro,i&e faster an&
better ser,ice to customers.
?8 ?e,eloping a broa& general strateg) to help the organi:ation meet its long-
term growth ob"ecti,es.
Answer: ; LG: !/LL: * Page: !1*
3ationale: 'rgani:ing inclu&es creating the con&itions an& s)stems in which
e,er)one an& e,er)thing wor0s together to achie,e an organi:ation=s ob"ecti,es.
<an) of to&a)=s organi:ations attempt to organi:e in wa)s that enable them to
please their customers at a profit.
6-!!*. B& Fla,orman% the chief e.ecuti,e of Fla,or Aest 4ce ;ream% belie,es that
alternati,e plans are almost as important as the primar) operational plans
because the mar0et is so competiti,e an& unpre&ictable. B& en&orses:
A8 tactical planning.
A8 retroacti,e planning.
;8 concurrent planning.
?8 contingenc) planning.
Answer: ? LG: */LL: * Page: !1-
3ationale: ;ontingenc) plans pro,i&e alternati,e courses of action for use if the
organi:ation(s primar) plans fail to achie,e their inten&e& results.
6-!!+. A7n8 EEEEEEEEEEis use& b) an organi:ation to show who is accountable for the
completion of specific wor0 an& who reports to whom.
A8 Aalance sheet
A8 Ienn &iagram
;8 $ta0ehol&er outline
?8 'rgani:ation chart
Answer: ? LG: /LL: 1 Page: !15
6-!*5. 'rgani:ations that use self-manage& teams often:
A8 ha,e ,er) autocratic managers.
A8 &elegate more planning% organi:ing an& controlling tas0s to lower-le,el
managers.
;8 eliminate most top management positions.
?8 fin& the) must increase in the number of mi&&le managers to manage an&
&irect the teams.
Answer: A LG: /LL: 1 Page: !1
6-!/. A team of wor0ers chosen from ,arious &epartments of a firm is calle& a:
A8 uni&irectional group.
A8 cross-functional team.
;8 customer-focuse& team.
?8 sta0ehol&er-oriente& organi:ation.
Answer: A LG: /LL: 1 Page: !!1
6-!. EEEEEEEEEEE in,ol,es recruiting% hiring% moti,ating% an& retaining the best people
a,ailable to accomplish the compan)(s ob"ecti,es.
A8 ?irecting
A8 Planning
;8 Lea&ing
?8 $taffing
Answer: ? LG: /LL: 1 Page: !!*
6-!5!. A.el has "ust been promote& to a position in first-line management. A.el(s new
position probabl) will re9uire him to spen& a lot of time:
A8 &e,eloping strategic plans.
A8 e,aluating the &ail) performance of wor0ers.
;8 creating a ,ision.
?8 tra,eling to &ifferent wor0sites.
Answer: A LG: /LL: * Page: !!/
3ationale: First-line managers are responsible for assigning specific "obs to
wor0ers an& e,aluating the performance of emplo)ees on a &ail) basis.
CHAPTER 8
;hapter - Test
--1.The &esign of a bureaucratic organi:ation assumes a well e&ucate& wor0force.
Answer: False LG: 1/LL: 1 Page: !*
--!.To better organi:e his business% Fran0 &i,i&es the re9uire& tas0s into smaller "obs
an& assigns each "ob to a specific emplo)ee. This is an e.ample of
&epartmentali:ation.
Answer: False LG: 1/LL: ! Page: !/
3ationale: ?i,i&ing tas0s into smaller "obs is calle& "ob speciali:ation.
?epartmentali:ation refers to the process of setting up in&i,i&ual &epartments to
&o speciali:e& tas0s.
--*.The &i,ision of labor an& speciali:ation often impro,es an emplo)ee=s "ob
performance.
Answer: True LG: 1/LL: 1 Page: !/
--.Bconomies of scale occur when a firm operates more efficientl) as it grows larger.
Answer: True LG: 1/LL: ! Page: !1
3ationale: Bconomies of scale is the concept that the bigger the firm% the more
efficient pro&uction becomes. This impro,e& efficienc) is the result of the
speciali:ation of labor an& purchasing raw materials in bul0.
--5.The &ri,ing force behin& the change in business organi:ations is the change in
consumer e.pectations.
Answer: True LG: 1/LL: 1 Page: !/
--+.The &egree to which an organi:ation allows lower le,el managers to ma0e &ecisions
&etermines the &egree of &ecentrali:ation.
Answer: True LG: !/LL: 1 Page: !5
--6. An organi:ational hierarch) establishes one person at the top of an organi:ation.
Answer: True LG: 1/LL: 1 Page: !*
---.The greater the rate of emplo)ee turno,er% the broa&er the span of control.
Answer: False LG: !/LL: 1 Page: !+
--5.The flatter an organi:ation=s structure% the fewer managers are nee&e&.
Answer: True LG: !/LL: 1 Page: !-
--1/.4n a line organi:ation% there are man) specialists who ser,e as a&,isors an&
assistants to the managers who ma0e &ecisions.
Answer: False LG: */LL: 1 Page: !51
--11.>hile staff personnel ha,e the authorit) to ma0e polic) &ecisions% line personnel
ha,e the authorit) to a&,ise an& ma0e suggestions.
--1!.;ross-functional teams are self-manage& groups of emplo)ees empowere& to wor0
with suppliers an& customers to &e,elop new pro&ucts an& gi,e great ser,ice.
--1*. The &esign of a bureaucratic organi:ation assumes a well e&ucate& wor0force.
Answer: False LG: 1/LL: 1 Page: !*
--1.An organi:ation=s core competencies are those functions that the firm can perform
as well or better than an)one else in the worl&.
--15.3eengineering is inten&e& to impro,e the performance of an organi:ation through
regular% incremental steps.
Answer: False LG: 5/LL: 1 Page: !5-
--1+. 3eengineering is the fun&amental rethin0ing an& ra&ical re&esign of organi:ational
processes in or&er to achie,e &ramatic impro,ements in performance.
Answer: True LG: 5/LL: 1 Page: !5-
--16.A firm(s formal organi:ation woul& be better suite& than its informal organi:ation to:
A8 create an atmosphere of frien&ship an& camara&erie among wor0ers.
A8 fin& answers to critical problems that re9uire logical anal)sis.
;8 fin& creati,e solutions to short-term problems.
?8 fin& a wa) aroun& bureaucratic rules an& regulations in or&er to get things
&one 9uic0l).
Answer: A LG: 5/LL: ! Page: !+/
--1-.4n an in,erte& organi:ation% the "ob of management is to:
A8 closel) monitor emplo)ee performance.
A8 establish rules an& regulations to gui&e wor0er beha,ior.
;8 ma0e all of the basic &ecisions.
?8 assist an& support front-line people.
Answer: ? LG: 5/LL: ! Page: !5-
3ationale: 4n an in,erte& organi:ation% the most important people are the front-
line personnel who are in &irect contact with the customers. These emplo)ees
are gi,en the fle.ibilit) an& &ecision ma0ing authorit) to meet the nee&s of these
customers. The "ob of management is to assist an& support these contact
people% not boss them aroun&.
--15.B.cite Bnterprises uses an accounting firm to han&le the pa)roll an& ta. functions
for the firm. #sing the ser,ices of another firm in this manner is an e.ample of:
A8 outsourcing.
A8 functional reassignment.
;8 core competencies.
?8 benchmar0ing.
Answer: A LG: /LL: ! Page: !56
--!/. As a new emplo)ee in a bureaucratic organi:ation% @anc) can e.pect a great
&eal of in&epen&ence an& authorit).
Answer: False LG: 1/LL: ! Page: !*
3ationale: 4n a bureaucratic organi:ation% e,er)one is e.pecte& to follow specific
rules. 'ne of the problems with this t)pe of organi:ation is that emplo)ees ha,e
little fle.ibilit) to respon& to customer wants an& nee&s.
--!1. ;entrali:e& authorit) pro,i&es for the &elegation of authorit) to emplo)ees who
are then better able to respon& to customers( nee&s.
Answer: False LG: !/LL: 1 Page: !5
--!!. ?epartmentali:ation creates an en,ironment in which people are traine& in a
,ariet) of managerial responsibilities.
Answer: False LG: !/LL: 1 Page: !-
--!*. 3ome ;orporation is organi:e& into &epartments such as finance% pro&uction%
mar0eting% &ata processing% an& accounting. 3ome has chosen to
&epartmentali:e b) function.
Answer: True LG: !/LL: ! Page: !-
3ationale: ?epartmentali:ation b) function means to group wor0ers into
&epartments base& on similar s0ills% e.pertise% an& resources.
--!.Line managers issue or&ers% enforce &iscipline% an& a&"ust the organi:ation as
con&itions change.
--!5.4n large businesses% a line organi:ation pro,i&es firms the abilit) to respon& 9uic0l)
to a changing en,ironment.
--!+.Line organi:ations clearl) &efine the lines of authorit) an& responsibilit).
--!6.<atri. organi:ations bring together specialists from &ifferent parts of the firm to
wor0 on specific pro"ects.
Answer: True LG: */LL: 1 Page: !5!
--!-.The team specialists in a matri. organi:ation remain part of the tra&itional line an&
staff structure.
Answer: True LG: */LL: 1 Page: !5!
--!5.A matri. organi:ation pro&uces an en,ironment that &iscourages cooperation an&
teamwor0.
Answer: False LG: */LL: 1 Page: !5!
--*/.;ross-functional teams are self-manage& groups of emplo)ees empowere& to wor0
with suppliers an& customers to &e,elop new pro&ucts an& gi,e great ser,ice.
--*1.;ross-functional teams ser,e as a&,isor) committees offering their e.pertise to line
&ecision ma0ers.
--*!.@etwor0ing uses communication technolog) to lin0 organi:ations allowing them to
wor0 together on common ob"ecti,es.
--**.The 4nternet ma0es real time a,ailabilit) of &ata possible.
--*.Transparenc) &escribes the relationship between a firm an& its stoc0hol&ers.
Answer: False LG: /LL: 1 Page: !55
--*5.Transparenc) allows two companies to wor0 more efficientl) together.
--*+.Aenchmar0ing re9uires organi:ations to compare each function against the best in
the worl&.
Answer: True LG: /LL: 1 Page: !5+
--*6.;ompetiti,e benchmar0ing rates an organi:ation=s pro&ucts an& operations against
the in&ustr) a,erage.
Answer: False LG: /LL: 1 Page: !5+
--*-.;ompetiti,e benchmar0ing compares a compan)(s practices% processes% an&
pro&ucts against the worl&=s best.
Answer: True LG: /LL: 1 Page: !5+
--*5.3estructuring in,ol,es relati,el) minor changes to an organi:ation to better meet
the nee&s of management.
Answer: False LG: 5/LL: 1 Page: !56
--/.4n,erte& organi:ations empower emplo)ees b) a&&ing multiple la)ers of
management an& long lines of communication.
Answer: False LG: 5/LL: 1 Page: !5-
--1.4n an in,erte& organi:ation% the purpose of management is to assist an& support
first-line emplo)ees% not boss them aroun&.
Answer: True LG: 5/LL: 1 Page: !5-
--!.A firm=s informal organi:ation refers to the structure that i&entifies the authorit)%
responsibilit)% an& position of people within the organi:ation.
Answer: False LG: 5/LL: 1 Page: !+/
--*.The informal organi:ation of a business can help generate creati,e solutions to
short-term problems.
Answer: True LG: 5/LL: 1 Page: !+/
--.The formal organi:ation of a firm pro,i&es the lines of authorit) to follow in routine
situations.
Answer: True LG: 5/LL: 1 Page: !+/
--5.'rgani:ing a business begins with:
A8 ac9uiring the necessar) resources.
A8 choosing the best 9ualifie& emplo)ees.
;8 &e,eloping an efficient plan of action.
?8 &etermining the wor0 to be &one.
Answer: ? LG: 1/LL: 1 Page: !/
--+.?i,i&ing the re9uire& wor0 among a group of emplo)ees is calle& a:
A8 &epartmentali:ation.
A8 &elegation of responsibilit).
;8 &i,ision of labor.
?8 separation of control.
Answer: ; LG: 1/LL: 1 Page: !/
--6.?i,i&ing tas0s into smaller "obs is calle&:
A8 "ob enrichment.
A8 "ob speciali:ation.
;8 &epartmentali:ation.
?8 &i,ision of authorit).
Answer: A LG: 1/LL: 1 Page: !/
---.The process of setting up in&i,i&ual &epartments to &o speciali:e& tas0s is calle&:
A8 &epartmentali:ation.
A8 a &i,ision of labor.
;8 "ob speciali:ation.
?8 &elegation of authorit).
Answer: A LG: 1/LL: 1 Page: !/
--5.4n a bureaucratic organi:ation:
A8 &epartments communicate with each other on a regular basis.
A8 emplo)ees follow strict rules an& regulations.
;8 customer satisfaction is the number one priorit).
?8 the first-line wor0ers are empowere& to respon& to the nee&s of customers.
Answer: A LG: 1/LL: 1 Page: !*
--5/.'ne a&,antage of a bureaucratic organi:ation is that:
A8 it is ,er) responsi,e to the wants an& nee&s of customers.
A8 there are ,er) few la)ers of management.
;8 it encourages cooperation among &ifferent &epartments within the
organi:ation.
?8 emplo)ees 0now what is e.pecte& of them.
Answer: ? LG: 1/LL: 1 Page: !*

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CHAPTER 5

5-1. The corporation is the most common form of business ownership.

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