Lori Small Business Management – Flashcards

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A startup typically experiences losses for a period of time, frequently as long as
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2-3 years.
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The liquidity of a firm is
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often measured by a ratio of current assets to current liabilities.
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The owners of small firms have a tendency to ____ the amount of capital their business requires.
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underestimate
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A common weakness in small business financing is
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too much investment in fixed assets.
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Retained profits represent
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internal equity.
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If a firm's current ratio improves from 1.5 to 2.0, what has likely happened?
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Current liabilities have decreased
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. If a firm's current ratio ____, its liquidity ____.
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increases. increases
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Operating profit margins of expanding businesses tend to suffer in the short run because
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fixed operating costs increase.
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A ____ shows the level that sales must reach before profitability is achieved.
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break-even case
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Drawbacks of selling stock as a source of funds include
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loss of voting control of the company.
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If a firm finances with equity rather than debt, net income will be greater because
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there is no interest expense.
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Equity investors cannot demand more than
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what is earned.
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One of the factors that influences the choice between debt and equity is the
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degree of control the owners hope to retain.
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To retain control over his business, an entrepreneur should seek initially to secure ____ financing.
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debt
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If the firm's rate of return on its assets is ____ than the cost of borrowing, then the owners' rate of return on equity will ____ as the firm uses ____ debt
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greater, increase, more
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Though not as common as using personal savings, one of the more often used sources of financing is
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wealthy individuals.
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One of the major sources of early financing is
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family members
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A line of credit is the ____ amount of credit a bank will provide a borrower at any one time
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maximum
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A ____ mortgage would likely be used to secure financing for mobile construction office.
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chattel
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Term loans are generally used to finance equipment with a useful life ____ the loan's term.
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equal to
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Pro forma statements required by bankers include all of the following EXCEPT
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personal financial statements.
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Lenders tend to view buyouts favorably because the acquired business has all of the following EXCEPT:
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seller financing.
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LIBOR is ____ the prime rate.
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considerably lower than
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A balloon payment
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is due when a loan comes due.
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If Bill Bailey, owner of Cherokee Communications, had violated the covenants of his loan agreement,
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the lender could have declared the loan due in full immediately.
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A primary source of financing for most smaller companies is
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trade credit.
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Instead of borrowing money from suppliers to purchase equipment, an increasing number of small businesses are
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choosing to lease the equipment.
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The assets most commonly used for security by asset-based lending companies are
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accounts receivable and inventory.
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The federal government provides funds to small businesses through
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the Small Business Administration.
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Small business investment companies (SBICs)
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may lend funds or supply equity funds.
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Private placement
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is the sale of capital stock to selected individuals.
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Research for developing a new method of manufacturing would be a(n) ______ asset.
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intangible
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The cash conversion period is the time between
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cash payment for inventory and collection of accounts receivable.
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Which of the following is not a part of managing working capital?
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Capital budgeting
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Which of the following is not directly involved in a firm's management of its working capital?
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Fixed assets
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Which of the following is not an asset used to calculate net operating working capital?
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Accruals
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Management of working capital focuses attention on
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cash, accounts receivable, inventory, and accounts payable.
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Cash deposits during a month less checks written during the same period equal
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net cash flow.
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Net cash flow and net profit are
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different.
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Net cash flow
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is the difference between cash inflows and outflows.
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Cash budgets
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treat income and expenses differently from the way they are treated on an income statement.
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On occasions when a small business has idle funds, cash should be
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invested.
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Excess cash should be
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invested.
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Which of the following is sometimes called near cash?
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Accounts receivable
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The life cycle of receivables begins with which of the following stages?
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A credit sale
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Accounts receivable financing might include
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pledging receivables and factoring.
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When a business sells its accounts receivable to a finance company, this is called
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factoring.
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Wilbur is attempting to raise some quick cash for his business by selling its accounts receivable to a finance company, this is called
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factoring.
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Inventory is called an "evil" because it
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ties up funds that are not actively productive.
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The terms 3/10, net 30 offer
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a 3 percent discount on purchases paid for within 10 days.
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Assuming that cash is available, payment for an account payable with terms of 3/10, net 30 should be made on day
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10.
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Failure to take cash discounts from suppliers
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typically makes a big difference to a firm's financial well-being, since a business pays a high rate for use of a supplier's money.
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Which of the following questions do all types of capital budgeting techniques try to answer?
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Do the future benefits from the investment exceed the cost of making the investment?
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Long-term investments are the focus of
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capital budgeting.
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The main purpose of capital budgeting is to help managers make decisions about
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long-term investments.
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Capital budgeting is important to the owner of a small business because
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correct investment decisions add value to the firm.
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The measurement techniques mentioned in the textbook include all of the following except
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the current accounts approach.
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Discounted cash flow techniques answer which of the following questions?
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How does the present value of future benefits from the investment compare to the investment outlay?
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The question "How many dollars in average profits are generated per dollar of average investment?" is answered using
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accounting return on investment.
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The question "How does the present value of future benefits from the investment compare to the initial investment outlay?" is answered using
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discounted cash flow analysis.
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An understanding of the present value of a future dollar is important when one is using
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discounted cash flow techniques.
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Discounted cash flow techniques of analysis include
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net present value and internal rate of return methods.
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If the net present value of a proposed investment is negative,
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the firm should not make the investment, since the present value of the future cash flows is less than the cost of the investment.
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Under the NPV method, the rate of return required to satisfy the firm's investors is
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the cost of capital.
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Financial statements are not likely to be used by
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trade intermediaries.
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Most small firms need to have financial statements generated at least
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annually.
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Most small firms generate a balance sheet at least
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annually.
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Any accounting system should accomplish all but which one of the following objectives?
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Reveal employer compliance with OSHA
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Regardless of their level of sophistication, available accounting systems
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often do not reveal employee fraud, theft, waste, and record-keeping errors.
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An analysis of which of the following records reveals the degree of effectiveness of a firm's credit and collection policies?
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Accounts receivable records
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A change in a firm's credit and collection policies will likely affect which of the following records?
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Accounts receivable records
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Which of the following records shows what the firm owes, facilitates the taking of cash discounts, and allows payments to be made when due?
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Accounts payable records
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An analysis of which of the following records is important in maintaining good customer relations?
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Accounts receivable records
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The major distinction between the cash method and the accrual method of accounting is that the
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point at which a firm reports revenue and expenses is different.
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Compared to the single-entry system, an advantage of the double-entry bookkeeping system is that
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it doesn't have to be self-balancing.
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A firm's liquidity can be measured by its
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current ratio.
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A current ratio is calculated by dividing
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current assets by current liabilities.
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To determine a firm's ability to convert accounts receivable into cash on a timely basis, you divide
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accounts receivable by daily credit sales.
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The firm's operating profit margin is computed as a ratio of operating profits to
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sales.
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The ____ is a function of how efficiently management is using the firm's assets to generate sales.
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total asset turnover
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The ____ indicates the extent to which plant and equipment are being utilized
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fixed asset turnover ratio
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The ____ is used to evaluate a firm's financial leverage.
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debt ratio
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____ ratios are concerned with how much financing risk is associated with a firm.
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debt
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The use of debt can
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increase a firm's return on equity.
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Higher turnover ratios for accounts receivable and inventories have implications for
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increased firm liquidity and profitability.
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The turnover ratios for accounts receivable and inventories
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should both be included in the financial analysis of a firm.
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Financial ratios
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allow financial comparisons to be made with other firms and industry standards.
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A business that has a large sum of money relative to debt owed
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is considered highly liquid.
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The current ratio is used to measure
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liquidity turnover.
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The ability of a firm to convert accounts receivable into cash is measured by
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accounts receivable turnover.
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Total assets is divided into ________ to calculate return on assets
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operating income
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Most customer service problems are identified by
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customer complaints.
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Information taken from warranty cards would be stored in which category of a customer profile?
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Customer contacts
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A customer's use of a discount coupon would most likely be recorded in which category of her customer profile?
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Responses to marketing stimuli
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All of the following are stages of consumer decision making except
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perceptual categorization.
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According to consumer information-processing theory, ____ is the final stage through which consumers progress.
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post-purchase evaluation
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Individual processes that ultimately give meaning to stimuli that confront consumers are known as
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perceptions.
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An enduring opinion that is based on a combination of knowledge, feeling, and behavioral tendency is referred to as
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an attitude.
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Buying an expensive set of underwear is most likely an attempt to satisfy which category of need?
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social
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Attending a wedding is most likely an attempt to satisfy which category of need?
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spiritual
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Working out at the gym is most likely an attempt to satisfy which category of need?
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physiological
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Sustainable competitive advantage is
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a value-creating industry position that is likely to endure over time.
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A firm's competitive advantage will never
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last forever.
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The competitive advantage life cycle has three stages, including the ____ stage.
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decline
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Marketing strategies for goods and services vary because of differences in all of the following characteristics except
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consumer appeal.
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The collection of product lines within a firm's ownership and control is referred to as the
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product mix.
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All of the following are stages in a formal product development process except
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product conceptualization.
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The initial stage in a formal product development process is the ____ stage.
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idea accumulation
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The ____ stage of the product development process entails planning for branding, packaging, and other supporting efforts such as pricing and promotion.
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total product development
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All of the following are appropriate vehicles for testing a product in the product development process except
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purchase simulations.
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A small firm can try to increase sales of an existing product by all of the following except
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emphasizing diversification.
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A verbal or symbolic means of identifying a product is referred to as a
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brand.
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An entrepreneur opened a small business producing high-quality paper products. She decided to place a multicolored pine tree on all product boxes and on the sign outside the facilities, to symbolize the business. This symbol is an example of
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a trademark.
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The name Xerox is a
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brand.
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The seller's measure of what he or she is willing to receive in exchange for transferring ownership or use of a product or service is known as
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price.
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The total sales revenue of a small business is a direct reflection of
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sales volume and price.
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Will's business will not be successful unless it charges a price for its products that covers its
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total fixed cost.
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Costs incurred by a firm in actually producing a product (e.g., materials, machinery, etc.) are considered to be a part of
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cost of goods sold.
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A pricing tactic whereby a firm sets a high price to convey an image of high quality or uniqueness is known as
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prestige pricing.
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A comprehensive break-even analysis entails
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examining revenue-cost relationships and establishing sales forecasts.
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Within the framework of a break-even analysis, an examination of ____ is conducted to determine the quantity at which the product, with an assumed price, will generate enough revenue to start earning a profit.
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costs and revenue
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Markup pricing may be expressed in terms of a percentage of either the ____ or the cost.
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selling price
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Credit granted by retailers to final consumers who purchase for personal or family use is referred to as
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consumer credit.
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Credit cards are usually based on ____ account system
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a revolving
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Which of the following is true with respect to installment accounts?
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A down payment is normally required.
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Which of the following is true with respect to revolving charge accounts?
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Charged purchases may not exceed the credit limit.
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Which of the following is not part of the communication process?
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Perception
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A promotional mix is influenced by the following three major factors:
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Geography of the market, the size of the promotional budget, and product characteristics.
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A widely dispersed market favors which of the promotional methods?
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Advertising
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Which of the following is one of the basic promotional methods?
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Advertising
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The major problem with the ____ method of determining promotional expenditures is the tendency to spend more when sales are increasing and less when they are declining.
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percentage of sales
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Which of the following does not describe a method of determining promotional expenditures?
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Matching industry forecasts
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A widely used piecemeal approach to determining the level of promotional expenditures is
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what the market will bear.
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The preferred method of determining promotional expenditures is
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what it will take to do the job.
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____ is a promotion delivered in a one-on-one environment.
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Personal selling
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Personal selling is widely used in
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retail, wholesale, and service establishments.
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Which of the following is not a technique for prospecting?
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Agency-initiated contacts
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The two major steps in preparing for a sales presentation are
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prospecting and practicing.
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Media publications, public records, and directories are sources of
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marketer-initiated contacts.
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Telephone calls and mail surveys are examples of
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marketer-initiated contacts.
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Customer objections can be categorized as relating to
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product and price.
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