Barringer entrepreneurship 2p91 test-bank chapter 07 PDF

Preview

Summary

Entrepreneurship: Successfully Launching New Ventures, 5e (Barringer/Ireland) Chapter 7 Preparing the Proper Ethical and Legal Foundation Tempered Mind, the company profiled in the opening feature in Chapter 7, has created an iPhone app that teaches users' a foreign language as they progress through...

Description

Entrepreneurship: Successfully Launching New Ventures, 5e (Barringer/Ireland) Chapter 7 Preparing the Proper Ethical and Legal Foundation 1) Tempered Mind, the company profiled in the opening feature in Chapter 7, has created an iPhone app that teaches users' a foreign language as they progress through the stages of a game. To get Tempered Mind off to a strong ethical start, the company was careful to avoid a temptation that mobile app developers have. That temptation, mentioned in the profile, is to ________. A) pay people to write positive reviews B) misrepresent the quality of the app C) copy material and action sequences that appear in other apps without obtaining permission from the owners D) withhold payment from freelancers who worked on the project E) ask employees to work unreasonable hours to get the project done Answer: A Diff: 3 Page Ref: 219 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 2) According to the textbook, the single most important thing the founders of an entrepreneurial venture can do is ________. A) start a board of advisors B) establish business partnerships C) make money D) select a limited liability corporation as opposed to an S-corporation E) establish a strong ethical culture for their firms Answer: E Diff: 2 Page Ref: 221 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 3) According to the 2013 National Business Ethics Survey, a total of ________ percent of the employees surveyed said they had observed misconduct or unethical behavior in the past year. A) 7 B) 15 C) 24 D) 33 E) 41 Answer: E Diff: 3 Page Ref: 221 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning

1 Copyright © 2016 Pearson Education, Inc.

4) According to the 2013 National Business Ethics Survey, which of the following forms of misconduct or unethical behavior was observed by the highest percentage of the U.S. workforce? A) Discriminating against employees B) Violating company policies related to Internet use C) Abusive behavior that creates a hostile work environment D) Lying to employees E) Stealing or theft Answer: C Diff: 3 Page Ref: 222 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 5) Which of the following is the most important thing that an entrepreneur, or team of entrepreneurs, can do to build a strong ethical culture in their organization? A) Implement an ethics training program B) Write a mission statement C) Lead by example D) Hire an ethics compliance officer E) Write a code of conduct Answer: C Diff: 3 Page Ref: 222 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 6) A code of ________ is a formal statement of an organization's values on certain ethical and social issues. A) conduct B) behavior C) performance D) principles E) morals Answer: A Diff: 2 Page Ref: 223 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning

2 Copyright © 2016 Pearson Education, Inc.

7) "Don't be evil" is the corporate motto for ________. A) Facebook B) Google C) Apple D) Microsoft E) Amazon.com Answer: B Diff: 2 Page Ref: 223 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 8) A situation that involves doing something that is beneficial to oneself or the organization, but may be unethical, is called a(n) ________. A) ethical quandary B) ethical predicament C) ethical dilemma D) principled quandary E) just dilemma Answer: C Diff: 2 Page Ref: 224 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 9) The What Went Wrong? feature in Chapter 7 focuses on Fitbit. Fitbit makes wearable activity trackers that measure data such as number of steps walked, quality of sleep, and other personal metrics. The feature centered on a product that Fitbit made (the Fitbit Force) that caused some users to develop skin rashes. The ethical issue at stake was whether Fitbit ________. A) cut corners and used inferior material in producing the product B) acted quickly enough in stopping production of the product C) misrepresented the nature of the problem to the people affected D) placed unfair blame on a supplier E) placed unfair blame on a small number of employees Answer: B Diff: 2 Page Ref: 226 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 10) The single most important thing the founders of an entrepreneurial venture can do to avoid ethical misconduct is to establish a strong ethical culture for their firms. Answer: TRUE Diff: 1 Page Ref: 221 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 3 Copyright © 2016 Pearson Education, Inc.

11) The most important thing that any entrepreneur, or team of entrepreneurs, can do to build a strong ethical culture in their organization is to hire an aggressive attorney. Answer: FALSE Diff: 2 Page Ref: 222 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 12) An ethical dilemma is a situation that involves doing something that is beneficial to oneself or the organization, but may be unethical. Answer: TRUE Diff: 2 Page Ref: 214 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning 13) List and briefly describe three specific steps that an entrepreneurial organization can take to build a strong ethical culture. Answer: (1) Lead by example. The most important thing that any entrepreneur, or team of entrepreneurs, can do to build a strong ethical culture in their organization is to lead by example. (2) Establish a code of conduct. A code of conduct is a formal statement of an organization's values on certain ethical and social issues. The advantage of having a code of conduct is that it provides specific guidance to managers and employees regarding what is expected of them in terms of ethical behavior. (3) Implement an ethics training program. Firms also use ethics training programs to promote ethical behavior. Ethics training programs teach business ethics to help employees deal with ethical dilemmas and improve their overall ethical conduct. Diff: 2 Page Ref: 217 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Ethical Understanding and Reasoning

4 Copyright © 2016 Pearson Education, Inc.

14) What is a founders' agreement? Describe the purpose of a buyback clause and why it's important? Answer: A founders' (or shareholders') agreement is a written document that deals with issues such as the relative split of the equity among the founders of the firm, how individual founders will be compensated for the cash or the "sweat equity" they put into the firm, and how long the founders will have to remain with the firm for their shares to fully vest. An important issue addressed by most founders' agreements is what happens to the equity of a founder if the founder dies or decides to leave the firm. Most founders' agreements include a buyback clause, which legally obligates the departing founders to sell to the remaining founders their interest in the firm if the remaining founders are interested. In most cases, the agreement also specifies the formula for computing the dollar value to be paid. The presence of a buyback agreement is important for at least two reasons. First, if a founder leaves the firm, the remaining founders may need the shares to offer to a replacement person. Second, if founders leave because they are disgruntled, the buyback clause provides the remaining founders a mechanism to keep the shares of the firm in the hands of people who are fully committed to a positive future for the venture. Diff: 2 Page Ref: 228 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Reflective Thinking 15) Describe the purpose of a nondisclosure agreement. Provide an example of when a nondisclosure agreement kicks in. Answer: A nondisclosure agreement is a promise made by an employee or other party (e.g., a supplier) to not disclose the company's trade secrets. An example would be an employee who is privy to a company's marketing strategy. If the employee quit her job and went to work for a competitor, it would be a violation of her nondisclosure agreement to tell her new employer the details of her previous employer's marketing strategy. Diff: 2 Page Ref: 231 LO: 7.1: Discuss the action founders can take to establish a strong ethical culture in their entrepreneurial ventures. AACSB: Reflective Thinking 16) A(n) ________ is a written document that deals with issues such as the relative split of the equity among the founders of the firm, how individual founders will be compensated for the cash or the "sweat equity" they put into the firm, and how long the founder will have to remain with the firm for their shares to fully vest. A) entrepreneurs' agreement B) creators' agreement C) founders' agreement D) initiators' agreement E) originators' agreement Answer: C Diff: 2 Page Ref: 228 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking

5 Copyright © 2016 Pearson Education, Inc.

17) Most founders' agreements include a ________ clause, which legally obligates the departing founder to sell to the remaining founders his or her interest in the firm if the remaining founders are interested. A) redemption B) buyback C) statutory purchase D) voluntary recoup E) shareholder surrender Answer: B Diff: 2 Page Ref: 228 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 18) Which of the following is typically not included in the founders' agreement for a firm? A) Marketing plan B) Legal form of business ownership C) Buyback clause D) Apportionment of stock E) Identity and proposed titles of the founders Answer: A Diff: 2 Page Ref: 228 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 19) The Savvy Entrepreneurial Firm feature in Chapter 7 focuses on the topic of vesting company stock. According to the feature, a typical startup's vesting schedule lasts ________ and includes a 12-month cliff. A) 12 months B) 12 months to 24 months C) 24 months to 36 months D) 36 months to 48 months E) 48 months to 60 months Answer: D Diff: 3 Page Ref: 229 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Analytical Thinking

6 Copyright © 2016 Pearson Education, Inc.

20) A(n) ________ agreement binds an employee or another party to not disclose a company's trade secret. A ________ agreement prevents an individual from competing against a former employer for a specific period of time. A) nondisclosure; noncompete B) non breach-of-trust; nonchallenge C) voluntary truth; nonparticipate D) binding confidentiality; noncompete E) ethics; nonparticipate Answer: A Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 21) Jessica Marsh just took a job with Instagram. As part of her employment contract, Jessica signed an agreement that states that he will not disclose any of Instagram's trade secrets. The agreement that Jessica signed is called a(n) ________ agreement. A) nondisclosure B) non breach-of-trust C) ethics D) binding confidentiality E) legitimacy Answer: A Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 22) Steven Diaz just took a job with Harley Davidson. As part of his employment agreement, Harley Davidson required Steven to sign an agreement, which states that if he leaves Harley Davidson, he will not work for a firm that competes against Harley Davidson for at least two years. The agreement that Steven signed is called a ________ agreement. A) nondisclosure B) nonparticipate C) nonchallenge D) noncompete E) noncontend Answer: D Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking

7 Copyright © 2016 Pearson Education, Inc.

23) ________ is the process in which an impartial third party helps those involved in a dispute reach an agreement. A) Conciliation B) Reconciliation C) Negotiation D) Appeasement E) Mediation Answer: E Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 24) It is important for an entrepreneur to select an attorney as late as possible when developing a business venture. Answer: FALSE Diff: 2 Page Ref: 225 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 25) A founders' agreement is a written document that deals with issues such as the relative split of the equity among the founders of the firm. Answer: TRUE Diff: 2 Page Ref: 228 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 26) The idea that it's important to get "everything in writing" in regard to business agreements causes unnecessary work and can lead to an erosion of trust between business partners. Answer: FALSE Diff: 2 Page Ref: 230 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 27) A noncompete agreement prevents an individual from competing against a former employer for a specific period of time. Answer: TRUE Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 28) Mediation is the process in which an impartial third party helps those involved in a dispute reach an agreement. Answer: TRUE Diff: 2 Page Ref: 231 LO: 7.2: Describe actions taken in new firms to effectively deal with legal issues. AACSB: Reflective Thinking 8 Copyright © 2016 Pearson Education, Inc.

29) Which of the following statements regarding business licenses and permits is incorrect? A) Most business licenses and permits can wait until after a business is launched to be obtained. B) A business license can typically be obtained at the city clerk's office in the community where the business will be located. C) If a business will be run out of a home, a home occupation business license is often required. D) Some business licenses are hard to get. E) The business licenses and permits that are needed vary by city, county, and state. Answer: A Diff: 1 Page Ref: 233 LO: 7.3: Provide an overview of the business licenses and permits that a start-up must obtain before it begins operating. AACSB: Reflective Thinking 30) Most businesses that plan to use a fictitious name, which is any name other than the business owner's name, need a(n) ________ permit. A) unreal business name B) fabricated business name C) invented business name D) conjured business name E) fictitious business name Answer: E Diff: 2 Page Ref: 233 LO: 7.3: Provide an overview of the business licenses and permits that a start-up must obtain before it begins operating. AACSB: Reflective Thinking 31) Very few businesses require licenses and permits to operate. Answer: FALSE Diff: 3 Page Ref: 233 LO: 7.3: Provide an overview of the business licenses and permits that a start-up must obtain before it begins operating. AACSB: Reflective Thinking 32) Which form of business ownership is a particularly poor choice for an aggressive entrepreneurial firm? A) C corporation B) Sole proprietorship C) Subchapter S corporation D) Limited partnership E) Limited liability corporation Answer: B Diff: 2 Page Ref: 236 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking

9 Copyright © 2016 Pearson Education, Inc.

33) Which of the following is not one of the four factors identified in the textbook as critical in selecting a form of business ownership? A) The cost of setting up and maintaining the legal form B) The number and types of investors involved C) Accounting considerations D) Tax considerations E) The extent to which personal assets can be shielded from the liabilities of the business Answer: C Diff: 2 Page Ref: 236 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 34) The simplest and most common form of business entity is the ________. A) sole proprietorship B) general partnership C) C Corporation D) limited liability company E) subchapter S corporation Answer: A Diff: 2 Page Ref: 236 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 35) All of the following are advantages of a sole proprietorship except ________. A) creating one is easy and inexpensive B) unlimited liability C) it is not subject to double taxation D) the owner maintains complete control of the business E) business losses can be deducted against the sole proprietor's other sources of income Answer: B Diff: 2 Page Ref: 236 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 36) Which of the following statements is incorrect regarding sole proprietorships? A) There is one owner. B) Sole proprietor is in full control. C) Business ends at the owner's death or loss of interest in the business. D) Liquidity of the investment is high. E) Money must be raised by the sole proprietor. Answer: D Diff: 2 Page Ref: 236 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking

10 Copyright © 2016 Pearson Education, Inc.

37) Partnerships are organized as either ________ or ________ partnerships. A) specific; general B) narrow; broad C) inward; outward D) general; limited E) partial; full Answer: D Diff: 2 Page Ref: 238 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 38) A(n) ________ details the responsibilities and the ownership shares of the partners involved with an organization. A) partnership agreement B) industry contract C) business pledge D) business agreement E) partnership pledge Answer: A Diff: 2 Page Ref: 238 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 39) Which of the following is not an advantage of a general partnership? A) Business losses can be deducted against the partners' other sources of income. B) The skills and abilities of more than one individual are available to the firm. C) The liquidity of each partner's investment is low. D) Creating one is relatively easy and inexpensive compared to a C corporation or limited liability company. E) It is not subject to double taxation. Answer: C Diff: 2 Page Ref: 238 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflective Thinking 40) A ________ partnership is a modified form of a general partnership. A) restricted B) limited C) partial D) constrained E) fractional Answer: B Diff: 2 Page Ref: 239 LO: 7.4: Identify and describe the different forms of organization available to new firms. AACSB: Reflect...