General Instructions –

·          Answer 1 mark question in about 20 words

·          Answer 2 mark question in about 20-50 words

·         Answer 3 mark question in about 50-100 words

·         Answer 4 mark question in about 100-150 words

·         Answer 6 mark question in about 250-300 words


1. What do you understand by Perceiving and sensing opportunities?

Ans. Perceiving and sensing opportunities

The entrepreneurs perceive opportunities, synthesize the available information and analyse emerging patterns that escape the attention of other people. They are people with vision, capable of persuading others such as customers, partners, employees and suppliers to see the opportunity, share and support it.


2. Name the factors which affect the operational plan.


a) Nature of venture

b) Type of product/service

c) Scale of operation, and

d) Technology involved

3.  What is goal setting?

Ans. “Establishing short or long term objectives, usually incorporating deadlines and quantifiable measures.”

4.  What are two ways in which organization can expand externally?


a) Franchising

b) Mergers and Acquisitions

5. Name   first two key elements in the process of financial management.


1.      Financial planning

2.      Financial control

6. What is Permanent Account Number (PAN).and why it is required?

Ans. Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued by the Income Tax Department.

PAN enables the department to link all transactions of the ―person with the department.

These transactions include tax payments, TDS/TCS credits, returns of income/wealth/

gift/FBT, specified transactions, correspondence, and so on. PAN, thus acts as an

identifier for the ―person‖ with the tax department.

It is mandatory to quote PAN in all documents pertaining to financial transactions.

7. Differentiate between trade mark and brand mark?

Ans. Brand mark

A brand mark is that part of a brand which can be recognized but cannot be vocalized i.e.

is non-utterable. It appears in the form of a symbol, design or distinct colour scheme. For

example: ‘Girl’ of Amul, ‘Maharaja’ of Air India, ‘Ronald’ of McDonald etc.

 Trade mark

A brand or part of a brand that is given legal protection against its use by other firms is

called a trade mark. Thus, a trade mark is essentially a legal term, protecting the seller’s

exclusive right to use the brand name/mark.

8. A book shop sells pens – 30,000 qty per year. Demand is uniform. Purchase cost is ` 6/- per pen. Holding cost per annum is 20% of purchase cost. Ordering cost is ` 500/- per order. What should be the EOQ for the shop keeper?

Ans. Here, D = 30,000; P = 500 and C = 1.2 (20% of 6)

So 2 x P x D = 3,00,00,000

This divided by 1.2 = 2,50,00,000

Square root of which is = 5,000

So the EOQ is 5,000 pens.


9. While there are benefits to going public, at the same time additional obligations and

reporting requirements on the companies and its directors means disadvantages too

what are they?

Ans. Drawbacks

While there are benefits to going public, it also means additional obligations and reporting requirements such as:

 Increasing accountability to public shareholders

 Need to maintain dividend and profit growth trends

 Becoming more vulnerable to an unwelcome takeover

 Need to observe and adhere strictly to the rules and regulations by governing bodies

10. What is the main objective of State Financial Corporations (SFCs)?

Ans. State Financial Corporations (SFCs)

1.To meet the financial needs of small and medium enterprises, the government of India

passed the State Financial Corporation Act in 1951, empowering the State governments to

establish development banks for their respective regions. Under the Act, SFCs have been

established by State governments to meet the financial requirements of medium and small sized enterprises. There are 18 SFCs at present.


2.Provide financial assistance to small and medium industrial concerns. These may be from

corporate or co-operative sectors as in case of IFCI or may be partnership, individual or

joint Hindu family business, engaged not only in the manufacture, preservation or

processing of goods, but also mining, hotel industry, transport undertakings, generation or distribution of electricity, repairs and maintenance of machinery, setting up or

development of an industrial area or industrial estate, etc.


3.Provide long and medium-term loan repayment ordinarily within a period not exceeding 20 years.


11. “An opportunity may be derived from the needs and problems of the society” Comment and explain with the help of a diagram.

Ans.   A prospective entrepreneur has to find an opportunity which would be suitable for him/her in terms of customers to be served and profits expected. An opportunity may be derived from the needs and problems of the society.

Enterprise Process Diagram

This diagram shows the following stages:

i) Opportunity spotting by analysing the needs and problems that exist in the environment

ii) Evaluating the ideas received from different sources to find a creative solution

iii) Identifying a product or service through innovation

iv) Setting up a project and nurturing it to success        


12. What  is Financial Plan  and what are the key areas for  a financial plan to work on ?

Ans. The financial plan is a projection of the financial data about the potential investment commitment needed for the new venture & economic feasibility of the enterprise.


Financial plan is a projection of key financial data about:

a) The potential investment commitment needed for the new venture, and

b) Economic feasibility of the enterprise

13. Imagine that you have started selling FMCG goods then what kind of promotional

strategies will you be using?

Ans. (explain)

  1. Contests
  2. Mail order marketing
  3. Product Giveaways
  4. Point of sale promotion
  5. Branded promotional gifts
  6. After sale customer surveys


14. What is Franchising and what are its advantages to franchisor?

Ans. Franchising is as “an arrangement whereby the manufacturer or sole distributor of a

trademarked product or service gives exclusive rights of local distribution to independent

retailers in return for their payment of royalties and conformance to standardized operating procedures”. The person offering the franchise is known as the franchisor. The franchisee is the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to success than if he or she were to start a new business from scratch. Foundation of this relationship is the Franchise Agreement.

Advantages of franchising to the franchisor

Quick expansion

The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. This advantage is significant when we reflect on the problems and issues that an entrepreneur faces in trying to manage and grow a new venture. A franchisor can expand a business nationally and even internationally by authorizing and selling franchises in selected locations. The capital necessary for this expansion is much less than it would be without franchising. Just think of the capital needed by DeLuca to build 8,300 Subway sandwich shops!

The value of the franchise depends on the track record of the franchisor and on the services offered to the entrepreneur or franchisee. Subway’s low franchise fee has enhanced expansion opportunities, as more people can afford it.

Operating a franchised business requires fewer employees than a non-franchised business. Headquarters and regional offices can be lightly staffed, primary to support the needs of the franchisees. This allows the franchisor to maintain low payroll and minimizes personnel issues and problems.

Cost advantages

The mere size of a franchised company offers many advantages to the franchisees. The

franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise. Many franchise businesses produce parts, accessories, packaging and raw materials in large quantities, then in turn sell these to the franchisees. The franchisee are usually required to purchase these items as part of the franchise agreement and they usually benefit from lower prices.

One of the biggest cost advantages of franchising a business is the ability to commit larger sums of money to advertising. Each franchisee contributes a percentage of sales (1 to 2 %) to an advertising pool. This pooling of resources allows the franchisor to conduct advertising in major media across a wide geographic area. If the business had not been franchised, the company would have to provide funds for the entire advertising budget.

15.  What is working capital? What are the requirements of working capital for a business of ice-cream selling?

Ans. Money needed to fund the normal, day to day operations of a business is known as the Working Capital. It ensures you have enough cash to pay your debts and expenses as they fall due, particularly during start-up period as very few new businesses are profitable as soon as they open their doors. It takes time to reach breakeven point and start making a profit.

It is a trading entrepreneurship.

They deal in buying and selling of manufactured goods.

Before launching the business they identify the potential market for his product in order to stimulate the demand.

They believe in creating the demand in the market to market survey and push many ideas ahead of others in the form of demonstration to promote their businesses.


  1. Cash(own or through loan)
  2. Purchases of ice-cream ( all types and all flavours)
  3. Labour charges and other day to day expenses
  4. Sale of ice-cream


16. What do you understand by Early Stage Financing in venture capital finance? Explain briefly various stages.

Ans. Entrepreneurs can typically seek venture capital to assist at any of the following four stages inthe company’s development.

1) Early stage financing

This stage includes:

(a) Seed capital

(b) Pre-start up and start up

(c) Second-round financing.

a) Seed capital finance

It refers to the capital required by an entrepreneur for conducting research at precommercialization stage. During this stage, the entrepreneur has to convince the

investor (VC) why his idea/product is worthwhile. The investor will investigate into

the technical and the economical feasibility of the idea.

In some cases, there is some sort of prototype of the idea/product that is not fully

developed or tested. As the risk element at this stage is very high, investor (VC) may

deny to assist if he does not see any potential in the idea. Entrepreneur’s ability,

technological skills and competencies are required to match with the market

opportunities so as to successfully convince about product/idea’s feasibility to the

venture capitalist.

b) Start up finance

If the idea/product/process is qualified for further investigation and/or investment,

the process will go to the second stage; this is also called the start-up stage. A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture. If the company has a board of directors, a person

from the VC firms will take seats at the board of directors. While the organisation is being set up, the idea/product gets its form. The prototype is being developed and fully tested. In some cases, clients are being attracted for initial sales. The management-team establishes a feasible production line to produce the product. The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors.

c) Second-round financing

At this stage, we presume that the idea has been transformed into a product and is

being produced and sold. This is the first encounter with the rest of the market, the

competitors and attempt is to squeeze in the market and get some market share from

the competitors.

17. Give three objectives of SIDBI and three Developmental functions of NABARD.

Ans. Objectives

SIDBI’s objectives are:

1) Initiate steps for technological upgradation, and/or modernization of existing units.

2) Expand channels for marketing of SSI sector products in India and abroad.

3) Promote employment – oriented industries.

Developmental Functions

i) NABARD coordinates the operations of rural credit institutions

ii) It develops expertise to deal with agricultural and rural problems so as to assist in

rural development efforts.

iii) It acts as an agent to the Government and RBI in the transaction of business in

relevant areas and provide facilities for training, research and dissemination of iv)information in rural banking and development.

Contributes to the share capital of eligible institutions.

v) Provides direct loans to centrally approved cases.


18. Mr. Raghav had always wanted to manufacture an innovative, energy efficient fan.

He was looking into various options and has finally narrowed it down to one option.

He understands that the entire idea would have to follow a process. Identify and

explain the process.

Ans.1. Product identification

An idea should lead the entrepreneur to a definite product/service which he can sell. So the first step is to obtain a concept of the product or service suggested by one idea. We should also see whether this product is already available in the market or not. If it is, then we should identify the reason for introducing the same product or service in the market. For example, innovating a new pendrive especially for teachers which will have a built in antivirus and which can be worn like a watch so it minimises the problem of losing the pendrive.   

2. Application and use

Ideas should be examined for their real life use and application. If it already exists in the

market, we will have to find out its present use, then we may think of modifying it for

better use. In the above mentioned example, we can clearly see that even though there are

many companies manufacturing pendrives, the latest will be in consonance with the

upcoming trends.

3. Level of operation

This is a crucial test for product/service identification. Depending on the use of the

product/service the entrepreneur will produce it in a cottage industry or a small scale–

industry or a large–scale industry.

4. Cost

What is the per unit cost of the product at particular level of operation? Whether this cost

is comparable with that of other competitive products? These are some of the questions

that have to be answered. This will ultimately decide the sale price.

5. Competition

Any product or service will face market competition at some stage. So market competition should be assessed through a study of the trends in demand and supply.

6. Technical complexity

What type of technology is required to produce the product? Whether training and

application of such technology will be locally available or will it have to be supported

from other places? What would be the position of supply of plant and machinery for such

a technology? These are important issues that have to be resolved.

7. Annual turnover and profit margin

Ideas should also have to be examined on the basis of expected annual turnover. This will

also indicate the market share of the product or service. Once the entrepreneur has assessed the opportunities on these basis he/she should go ahead and assess the market also.   


19. A person has decided to start a small leather belt manufacturing unit. He/she is not

aware of the various formalities involved in the process of setting up the unit.

Explain to him/her the procedure.

Ans. Legal formalities involved are:

Sole proprietorship registration procedure

A sole proprietorship does not need to be registered (so yes, ‘registration of a sole

proprietorship’ is a wrong thing to say) and is therefore an inexpensive manner of

commencing business.

However, in order to start a sole proprietorship an entrepreneur requires certain industry

specific licenses. A few general factors are:

1. Business name: Sole proprietors are under no obligations to select a trade name for

their business. How so ever they are free to do so if they desire to.

2. Service tax registration: Form ST 1 is to be filled for registration if the taxable

services are more than 10 lakh for a financial year.

3. VAT/CST registration: If proprietorship is selling tangible goods within a state then

VAT applies, if it is inter-state then CST applies. The threshold for registration for

VAT varies depending on the city in which entrepreneur commences business but a

CST registration is imperative if he/she affect an inter-state transfer.

4. Others: PAN Card no. of the sole proprietor, bank account no. in the name of sole

proprietorship business, Shops & Establishment License, Employee Provident Fund

Registration or Importer Exporter Code (if in export-import business) as and where

applicable, have to be complied with.

5. Payment of taxes: A sole trader has to ensure his/her business meets the state and

federal taxation requirements. Due to the fact that legally, a sole tradership and a

sole trader are a single entity, the sole trader bears the taxes of the business.   


20. What is Penetration pricing method? Enlist its advantages and disadvantages.

Ans. Penetration pricing

Penetration pricing is a pricing strategy where the price of a product is initially set at a

price lower than the eventual market price to attract new customers. The strategy works

on the expectations that customers will switch to the new brand because of the lower

price. Penetration pricing is most commonly associated with a marketing objective of

increasing market share or sales volume, rather than to make profit in the short term. The

price will be raised later once this market share is gained. For example, toothpaste sold in

a remote rural area.

The advantages of penetration pricing to the firm are:

 It can result in fast diffusion and adoption. This can achieve high market rates quickly.

This can take the competitors by surprise, not giving them time to react.

 It can create goodwill among the early adopters segment. This can create more trade

by word of mouth.

 It creates cost control and cost reduction pressures from the start, leading to greater


 It discourages the entry of competitors. Low prices act as a barrier to entry

 It can create high stock turnover throughout the distribution channel

 This can create critically important enthusiasm and support in the channel.

Disadvantages or penetrating price method:

 The main disadvantage with penetration pricing is that it establishes long–term price

expectations for the product and image preconceptions for the brand and company. This

makes it difficult to eventually raise prices. Some commentators claim that penetration

pricing attracts only the switchers (bargain hunters), and that they will switch away as

soon as the price rises. There is much controversy over whether it is better to raise prices

gradually over a period of years (so that consumers don’t notice), or employ a single

large price increase. A common solution to this problem is to set the initial price at the

long term market price, but include an initial discount coupon. In this way, the

perceived price points remain high even though the actual selling price is low.

 Another potential disadvantage is that the low profit margins may not be sustainable

long enough for the strategy to be effective.

21. Kirti Co. Ltd manufacturers has three products  P,Q, R. From the  following information ,  you are required to  work out

Total Fixed cost are Rs. 14, 80,000

a)      Weighted average contribution

b)     Overall  break-even point in units

c)      Product- wise break even points in units

d)     Break-even point in rupees


          P          Q              R
Sales Price  Per Unit 100 80 50
Variable cost per unit 50 40 20
Sales mix % 20 30 50


Sales Price  Per Unit Rs.100 Rs.80 Rs.50
Variable cost per unit Rs.50 Rs.40 Rs.20
Contribution margin Rs.50 Rs.40 Rs.30
Weighted average CM per unit 50x 20/100=10 40×30/100=12 30×50/100=15


Total Weighted average CM per unit  = 10+12+15=37

Overall breakeven point= Fixed cost    = 14,80,000  = 40,000 units

                                        Contribution       37

Product-wise breakeven point=

Breakeven point of P = 40,000×20% = 8000 units

Breakeven point of  Q= 40,000×30% = 12,000 units

Breakeven point of R = 40,000×50% = 20,000 units


Product units at breakeven point x selling 8000 x 100 12,000 x 80 20,000 x 50
Product wise BEP sales in Rupees Rs.8,00,000 Rs. 9,60,000 Rs.10,00,000


Breakeven point in Rs. Rs.8,00,000 + Rs. 9,60,000 + Rs.10,00,000= 27,60,000










22. Vinay was a young entrepreneur who wanted to start a new business with an initial investment of 25 lakhs. He was not sure of what business he has to undertake. His friend suggested seeking the help of professionals who would spot the latest trends in the market and give him an idea, but Vinay decided to do it by himself. Suggest the various ways by which he can do it.

Ans. Trend spotting

It means identification of new trends. This will help the entrepreneur to understand

the market and produce goods or provide services in sync with the market trends.

But how do we spot trends?

One of the keys to business success is to anticipate what the market will want

or need before the entrepreneurs are aware of it themselves. Since it’s unlikely for an entrepreneur to see into the future, the best way to do this is to become a trend-spotter.

Professional trend-spotters charge big money for reports and industry trend updates. But there are some entrepreneurs who spot these trends themselves. There are so many ways to spot trends.

Read trends

They regularly read the leading publications and websites affecting their business. This

could include industry publications, trade association sites, major newspapers, key

business magazines, thought leaders and influential bloggers. So many trends start

overseas (London, Paris, Tokyo), so they make sure that they read about what is going on

in those cities. At first, they scan information from a wide variety of sources – from

international news on down to niche bloggers focused on specific aspects of their industry.

Obviously, there‟s a tsunami of information available. They use tech–tools like RSS feeds,

e-mail newsletters or websites and forums to keep on top out of all and get the

information they want. They understand quickly which sources are valuable and which

should be avoided.

Talk trends

Talking to people is an equally important trend-spotting tactic. They get involved in

specific industry‟s trade association and attending events both online and offline. They

also take advantage of social networking tools like social network websites and forums.

They even start or join groups on the networks and see what people are buzzing about

and about the latest trends. It’s also important to talk to customers and prospective customers, both online and offline.

They use social media or online surveys to get input on what customers are thinking,

buying, craving and doing. They also use social network websites and forums to identify

key influencers and trendsetters in their target markets. In addition, they pay attention to

ratings and review sites — not just what customers are saying about the business, but what they’re saying about the competitor’s business.

3. Watch trends

There’s no substitute for getting out in the marketplace. They make it a point to regularly

go where their target customers hang out. If the customers are teenagers, that might be the local mall. If they are business people, it might be the region’s “power lunch” restaurant or office park restaurant center. The entrepreneur spends some time simply watching and observing. What are people eating, doing, wearing, using? What stores or restaurants draw crowds and which sit empty? Trade shows are a great place to get trend ideas, too even if they are not looking to buy product, they attend many shows simply to see what’s hot.

4. Think trends

As an entrepreneur begins gathering all these information regularly, they will start to

develop a “trend-spotter mind.” As they absorb and mull about what they’ve read, heard

and observed, they’ll start to make connections and observations that will lead to

Business-boosting insights. The news about rising shrimp prices, the lines out the door at

the Asian-fusion restaurant downtown, and something one of the customers said last

week will all come together and they’ll have a great idea for a new menu item, a new

product line or even a whole new business.


23.  What is Business Plan? Explain various formats of it and also explain importance of Business Plan.

Ans. What is the business plan

The business plan is a comprehensively written down document prepared by the entrepreneur describing formally all the relevant external and internal elements involved in starting a new venture. It’s a formal statement of a set of business goals, the reasons they are believed attainable and the plan for reaching those goals along with the background information about the organization or/and team attempting to reach those goals.


Thus, a business plan is a comprehensive project report which not only encompasses the entire range of activities which are being planned in the business, but also:

a) helps to understand the feasibility and viability of the proposed venture,

b) facilitates in assessing and making provisions for the bottlenecks in the progress and

implementation of the idea,

d)discusses the potential for success of the project along with the risk factors involved.

Formats of a business plan:

The depth and detail in the business plan depends on the size and scope of the proposed new venture. There is no fixed content for a business plan as it varies according to the entrepreneur’s goals and audience (i.e. who are being targeted).

Thus, it is common for especially start-ups to have three or four formats as follows for the same business plan.

i) Elevator pitch: It is a three minute summary of the business plan’s executive summary.

This is often used as a teaser to awaken the interest of potential funders, customers, or

strategic partners.

ii) A pitch deck with oral narrative : A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation, i.e. the executive summary and a few key graphs showing financial trends and key decision making benchmark.

iii) A written presentation for external stakeholders: A detailed, well written, and pleasingly formatted plan targeted at external stakeholders.

iv) An internal operational plan: A detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders.

Importance of the business plan

The business plan is valuable to the entrepreneur, potential investors, venture capitalists, banks, financial institutions, new personnel’s suppliers, customers, advisors and others who are trying to familiarize themselves with the venture, its goals, and objectives. The business plan –

a) helps in determining the viability of the venture in a designated market

b) helps in providing guidance to the entrepreneur in organizing his/her planning activities as such:

i) identifying the resources required

ii) enabling obtaining of licenses if required etc.

iii) working out with legal requirements as desired by the government.

c) helps in satisfying the concerns, queries, and issues of each group of people interested in the venture.

d) provides room for self-assessment and self-evaluation, requiring entrepreneur to think

through various scenarios and plan ways to avoid obstacles.

e) though not desirable, at times, business plan helps to realize the obstacles which cannot be avoided or overcome, suggesting to terminate the venture while still on paper without

investing further time and money.

f) as the investors/lenders focus on the four Cs of credit : character, cash flow, collateral and equity contribution, it is the business plan which reflects the entrepreneur’s credit history, the ability to meet debt and interest payments, and the amount of personal equity invested thus serving as an important tool in funds procurement.

24.  There are various reasons for failure of mergers and acquisition. Explain the following

  1. Overstated synergies
  2. Inadequate due diligence
  3. High leverage
  4. Regulatory issues


Ans.Overstated synergies

Mergers and acquisitions are looked upon as an important instrument for creating

synergies through increased revenue, reduced costs and reduction in networking capital and improvement in the investment intensity. Overestimation for these can lead to failure

of mergers.

Inadequate due diligence

Due diligence is a crucial component of the M&A process as it helps in detecting financial

and business risks that the acquirer inherits from the target company. Inaccurate

estimation of the related risk can result in failure of the merger.

High leverage

One of the most crucial elements of an effective acquisition strategy is planning how one

intends to finance the deal through an ideal capital structure. The acquirer may decide to

acquire the target through cash. To pay the price of acquisition, the acquirer may borrow

heavily from the market. This creates a very high leveraged structure and increases the

interest burden of the company. This increased interest cost may consume a big portion of

the earnings and defeat the very purpose of acquisition.

Regulatory issues

The entire process of merger requires legal approvals. If any of the stakeholders are not in

favour of the merger, they might create legal obstacles and slow down the entire process.

This results in regulatory delays and increases the risk of deterioration for the business.

While evaluating a merger proposal, care should be taken to ensure that regulatory

hassles do not crop up.





About booksbysonamsachdeva

Hello Readers! I am Sonam Sachdeva and I am an Author, Lecturer, and yes, now a Blogger. I have a rich experience of 4 years in teaching core Management subjects to more than 1000 students. I have done MBA and BBA from Guru Gobind Singh Indraprastha University, PGDIBO from IGNOU and ACM (HRM) from AIMA. I have also qualified UGC NET & JRF. I am presently empanelled as an Assistant Professor at Delhi University, New Delhi. I have attended various National and International Conferences, Seminars and Workshops. I have written several research papers, case studies and book reviews which have been published in reputed International and National journals. I was a rank holder in my post-graduation and graduation and was a scholar at school. Moreover, I have been an active recruiter in the institutions I served. I am a member of All India Management Association and Delhi Management Association. Teaching is my passion and I hope that through this blog, I will help you become expert in some of the most demanding subjects in Management. I hope that you will like the stuff. For any queries, write at: Enjoy reading... Sonam Sachdeva

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