Section A: Multiple Choice (20 marks)

1. Franchising:

A. Adds to resource constraints of accessing financial capital, human capital and local market

knowledge.

B. Is a risky venture and may fail easily.

C. Improves efficiency, that is, achieve economies of scale related to operational activities.

D. Increases agency problems.

2. According to pecking order theory, owner-managers will often choose to finance with:

A. New equity rather than debt, due to bankruptcy costs.

B. Debt rather than new equity, to avoid having a new business partner.

C. Debt rather than retained earnings, to lower the weighted average cost of capital.

D. New equity rather than debt, to strengthen earnings per share.

3. Which of the following explains how small enterprises are able to survive and operate profitably

when they are unable to exploit economies of scale?

A. Small enterprises are less risky and face lower financing costs.

B. The small business has found a niche market.

C. Innovation by the large enterprises that gives new or better quality product.

D. All of the above.

4. When a small firm finances long-term assets with short-term sources of funding, it:

A. Reduces the risk of cash shortage.

B. Will have lower interest expense.

C. Improves the leverage ratio.

D. Is ignoring the principle of matched maturities.

5. Which of the following is a good example of deviation from a perfect capital market?

A. Small businesses are subject to income taxes.

B. There is no transaction cost associated with supplying or obtaining funds.

C. Bankruptcy and the liquidation of assets of individuals and business enterprises are costless.

D. Funds are available to individuals and business enterprises in any amount.

6. High incidence of weak working capital management found in SEs can be due to:

A. Majority of the small enterprises forecasting their cash flows.

B. Poor billing, follow up of debts and credit management.

C. Most SEs taking advantage of trade discounts.

D. Information readily available to assist with working capital management

7. Which of the following is not a factor that favours large enterprises over small firms as being

innovators?

A. Large enterprises have superior access to capital.

B. Large enterprises have the ability to pool risks by conducting diversification.

C. Large enterprises are not able to achieve economies of scale compared to small firms.

D. Large enterprises have greater opportunity to exploit commercially any unexpected

innovation advances.

8. According to the stage models of a business lifecycle, the exploitation period refers to the phase

in which:

A. Sales and profits grow slowly following the introduction of a new product or service.

B. The enterprise faces the appearance of substitute products, technological and managerial

obsolescence and saturation of demand for its goods.

C. The rate of growth sales begins to slow down; growth is dependent in large part upon

replacement demand.

D. The business enjoys rapid growth of sales, high profits ability and acceptance of the product

or service.

9. What is the best way a government can support SMEs?

A. Focus on super-growth firms rather than start-ups.

B. Concentrate on areas of economic decline.

C. Provide a stable macroeconomic environment.

D. All of the above.

10. Which of the following is not a reason for valuing an enterprise as part of legal settlements?

A. Settlement of undisputed contracts.

B. Divorce settlements.

C. Damages settlements.

D. Division of property among the beneficiaries of a will.

11. The market valuation method:

A. Values the enterprise as a multiple of its expected maintainable annual earnings.

B. Values the enterprise by dividing the annual earnings estimate by a required rate of return.

C. Values the enterprise by discounting the future monetary cash flow streams.

D. Cannot be applied to small enterprises whose equity is not publicly traded.

12. Which one of the following is not a common cause of SME failure?

A. Initial and ongoing undercapitalization.

B. Ability to raise external finance on acceptable terms.

C. Recurring difficulties with servicing debt.

D. Inadequate margins.

13. Which of the following is not one of the main ways of leaving a small enterprise?

A. Stock market floatation.

B. Selling your franchise business to a third party before expiration of contract.

C. Pass on your shares to your heir in case of a family business.

D. Sell your sole trading business to a competitor.

14. You have conducted a Cash Conversion Cycle analysis and the cycle shows 35 days. This means

that:

A. It takes 35 days to pay off all current liabilities.

B. It takes a cycle of 35 days to convert long-term assets into cash.

C. It takes a cycle of 35 days to convert cash into profits.

D. It takes 35 days from the time money was tied up on inventories to collecting payments from

customers.

15. Which of the following does not represent a generic problem of a small enterprise?

A. Recurring profitability problems.

B. Restrained access to financial resources.

C. Limited market power.

D. Dependence on founding owners.

16. Several barriers to small enterprises moving to electronic systems and information exchange

includes:

A. Availability of internal specialist.

B. Abundance of business reasons to participate.

C. Lack of knowledge, interest, skill or time.

D. All of the above.

17. Glitz Pte Ltd. would like to increase its internal rate of growth. Decreasing which one of the

following will help the firm achieve its goal?

A. Return on assets

B. Net income

C. Retention ratio

D. Dividend payout ratio

18. Business funding application may be refused by a lender due to:

A. Clients healthy credit risk.

B. Client does not approve of the costs on loan application.

C. Sufficient security provided by client.

D. Ability to meet lending criteria

19. The owner-manager of a newly established small business need not be concerned with the

following:

A. Liquidity Management

B. Working Capital Management

C. Asset Management.

D. Initial Public Offering Management

20. Which of the following situations described below would not lead to a small business valuation?

A. Melissa wanting to obtain finance from her bank.

B. Paulo selling his small enterprise to Apolosi at market value.

C. Tom has a small hair saloon business and recently got legally married to Anna.

D. Natasha and Mary are considering merging their sole businesses into a partnership.