SAMPLE PAPER 3, CLASS 12 ENTREPRENEURSHIP; CBSE 2016

Standard

 

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 the term ‘Idea Generation’?

Ans. Idea generation

The process of creating, developing, and communicating ideas which are abstract, concrete, or visual. It includes the process of constructing through the idea, innovating the concept, developing the process, and bringing the concept to reality.

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2. Name the factors which affect the operational plan.

Ans.

a) Nature of venture

b) Type of product/service

c) Scale of operation, and

d) Technology involved

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3.  What are SMART Goals?

Ans. S.M.A.R.T. is an acronym for the 5 steps of specific, measurable, achievable, relevant, and time-based goals. It’s a simple tool used by businesses to go beyond the realm of fuzzy goal setting into an actionable plan for results.

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

Ans.

a) Franchising

b) Mergers and Acquisitions

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

Ans.

  1. Financial planning
  2. Financial control
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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.

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7. What is’ LOGO’ and what is its purpose?

Ans. ‘Logo’ (Short for Logotype) is an identifying symbol for a product or business. It can beany distinctive design, mark, sign which stands associated with the entrepreneur’s offering. ‘Logo’ is an important feature or part of branding.

Thus, a logo is a graphic mark or emblem commonly used by commercial enterprises, organisations and even individuals to aid and promote instant public recognition. Logos are either purely graphic (symbols/icons) or are composed of the name of the organisation(a logotype or word mark).

Purpose

1) Logos are a critical aspect of business marketing. As the company’s major graphical representation, a logo anchors company’s brand.

2) Corporate Logo are intended to be the “Identity” of an enterprise because of displaying graphically enterprise’s uniqueness.

3) Through a set color combination, fonts, images, impression and/or pattern, logos provide essential information about a company that allows customers to relate with the enterprise’s core brand.

4) Enterprises normally resort to logos’ as a short path for advertising and other marketing materials.

5) Logos act as the key visual component of an enterprise’s overall brand identify.

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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.

 

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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

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10. Explain the Role and importance of Specialized Financial Institutions in India?

Ans. These Specialized Financial Institutions in India are not only committed to financial services but are also devoted towards playing a role of a promotional “mentor” & technical advisor to a wide range of the upcoming and existing entrepreneurs. Thus, these Specialized Financial Institutions (SFIs) make an important source of medium and longterm financing amongst all the financial institutions in India, to the industry.

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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 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                                               

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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

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

strategies will you be using? 

Ans.

  1. Contests
  2. Mail order marketing
  3. Product Giveaways
  4. Point of sale promotion
  5. Branded promotional gifts
  6. After sale customer surveys.                                                           
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14. What do you understand by Franchising and how it helps startups?

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.

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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

 

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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 in the 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.

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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 information in rural banking and development.

iv)Contributes to the share capital of eligible institutions.

v) Provides direct loans to centrally approved cases.

 

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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.                                           

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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.   

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20. Write short notes on

a)      Customer relationship Management

b)     Employee Management.

Ans.

CRM is the abbreviation for customer relationship management. It entails all aspects of interaction that a company has with its customer, whether it is sales or service-related. It is the process of carefully managing detailed information about individual customers in order to manage loyalty.

CRM is often thought of as a business strategy that enables businesses to:

 understand the customer

 retain customers through better customer experience

 attract new customer

 win new clients and contracts

 increase profitability

 decrease customer management costs

Employee relationship management is a process that companies use to effectively manage all interactions with employees, ultimately to achieve the goals of the organisation. The human resources department can play a critical role in this process, both in terms of training and coaching managers and executives on how to effectively establish and nurture relationships with employees and in measuring and monitoring those relationships to determine whether objectives are being met.

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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

 

Ans.

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

 

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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.

6
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.

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

a)      Unrealistic price paid for the target

b)     Difficulties  in cultural integration

c)      High Leverage

d)     Boardroom Split.

Ans. 1. Unrealistic price paid for target

The process of M&A involves valuation of the target company and paying a price for taking over the assets of the company. Quite often one finds that the price paid to the target company is much more than what should have been paid. While the shareholders of the target company stand benefited, the shareholders of the acquirer end up on the losing side. This is because they have to carry the burden of the overpriced assets of the target company which dilutes the future earnings of the acquirer. Having bid overenthusiastically, the buyer may find that the premium paid for the acquired company’s shares, the so-called ‘winner’s curse’ wipes out any gains made from the acquisition. This phenomenon is generally noticed in the later years when the acquirer has to revalue the assets and write goodwill booked at the time of M&A.

2. Difficulties in cultural integration

Every merger involves combining of two or more different entities. These entities reflect different corporate cultures, styles of leadership, differing employee expectations and functional differences. If the merger is implemented in a way that does not deal sensitively with the companies people and their different corporate cultures, the process may turn out to be a disaster. There may be acute contrasts between the attitudes and values of the two companies, especially if the new partnership crosses national boundaries. While the process is being executed, these differences are known but often ignored. As years pass by and the combined entity tries to synergize the operations, these differences surface and often lead to failure of the merger. For example, the merger of Daimler Benz with Chrysler. While Daimler-Benz’s culture stressed on a more formal and structured management style, Chrysler favoured a more relaxed, freewheeling style.

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.

8. Boardroom split

When a merger is planned, it is crucial to evaluate the composition of the boardroom and compatibility of the directors. Managers or directors who are suddenly deprived of authority can be particularly bitter. Specific personality clashes between executives in the two companies are also very common. This may prove to be a major problem, slowing down or preventing integration of the entities.

                                      

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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: booksbysonamsachdeva@outlook.com Enjoy reading... Sonam Sachdeva

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