Q.1 Vidisha and Tanya finished their graduation in law and plan to start their own firm in Delhi. What form of business organization will suit them?
Ans. Partnership form of organization.
Q.2 What is a business opportunity?
Ans. Business opportunity can be described as an economic idea which can be implemented to create a business enterprise and earn profits.
Q.3 What is a ‘Partnership Deed’?
Ans.Partnership is an agreement between persons to carry on a business, entered into either orally or in writing. It is always desirable to have a written agreement so as to avoid misunderstandings and unnecessary litigations in future. When the agreement is in written form, it is called a ‘Partnership Deed’. It must be duly signed by the partners, stamped and registered. Any alteration in one partnership deed can be made with the mutual consent of all the partners.
Q.4 Ramesh wants to start a small restaurant, but he is confused as to what kind of cuisine he should concentrate on selling. State any two ways as to how he can understand the market and accordingly decide his cuisine in relation with the market trends.
Ans. Spotting trends- 1. Read trends; 2. Talk trends; 3. watch trends; 4. think trends.
Q.5 Pranjal has 500 shares of L&T. L&T comes out with a fresh issue of shares and Pranjal received on offer to buy 1 share of L&T for every 5 shares held by her. Which method of floating new issue is indicated in this case.
Ans. Rights Issue
Q.6 Differentiate between ‘above the line’ (ATL) and ‘below the line’ (BTL) promotion strategy. (any four)
|Basis||‘above the line’ (ATL)||‘below the line’ (BTL)|
|Target||Mass audience||Identified small groups|
|Promotions||Establishing brand identity||Can lead to an actual sale|
|Measurability||Difficult to measure||Easy to measure|
|Examples||print, online, television and cinema advertising||Sponsorship, sales promotions, public relations, personal selling, direct marketing|
Q.7 What is ‘Excise Duty’? Is it collected by the state government or the central government?
Ans.. It is a tax on manufacture or production of goods. Excise duty on alcohol, alcoholic preparations and narcotic substances is collected by the state government and excise duty on the rest of the goods is collected by the central government.
Q.8 Sandeep had started his business of dairy products in 2013. He wanted to expand his business but did not have the necessary funds. One of his friends suggested that he should approach Mr. Goel, a venture capitalist for further funds. Sandeep approached Mr.Goel with the executive summary and a few key graphs showing financial trendsand key decision making benchmark in the form of slide presentation. Identify and explain the format of business plan referred in the above para.
Ans.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.
Q.9 Hema Enterprises is dealing in Health Drinks. The enterprise has been manufacturing ‘Mother’s Choice’ a malt based health drink. Adapting to the latest market trends she decided to bring out an improved form of fortified health drink with vitamin B-12, iron and minerals to increase immunity. The enterprise believed that by modifying the product it will be able to create a new product. Identify the concept and define it.
Businesses add value to goods and services by modifying them in a particular way to create a new product of greater value to customers
Q.10 Sonu and Sohamare new generation high tech farmer involved in organic farming. Theyrealized that there was a huge market for fruits and vegetables as people have become diet conscious and prefer to eat healthy food. Keeping this in mind, they decided to open ‘Salad bars and organic fruit juice corners’ in prominent malls in Delhi. They finalized the area of operation, finances required and how to procure it. Their consultants advised them to put down all their ideas into a comprehensive project report that will provide them with a ‘road map’ for the organisation. What report are the consultants talking about and why is it so important to make this report?
Ans. Business Plan; 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/or 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
- 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.
Q.11 State the steps in the ‘Creative Process’ after the ‘stage of preparation’?
Ans. Incubation: This is the subconscious assimilation of information. This is the transition period. The entrepreneur starts thinking about the idea and implementation in his sub-conscious mind.
Illumination: In this period of illumination the idea re-surfaces in realistic way and entrepreneur comes out with viable plan to give practical shape by collecting raw-material, arranging funds, policy making for implementation of idea.
Verification: Also called the validation or testing stage. This is where the idea is verified to prove that it has value. This is the most difficult phase of creativity as obstacles begin to appear. This is the developing stage in which knowledge is developed into application.
Q.12 Mr. Sanjay has been appointed as Assistant Manager in a reputed financial organization which was established as a joint stock company in the private sector in 1955. Its share capital was contributed by banks,insurance companies and foreign institutions including the World Bank. Its majorshareholders now are Unit Trust of India, Life Insurance Corporation of India and GeneralInsurance Corporation and its subsidiaries. Identify this organization. State its main objective and any one function.
Ans. Organisation is ICICI- Industrial Credit and Investment Corporation of India
Objective:To assist in the formation, expansion and modernization of industrial units in the privatesector
Function:i) It provides medium and long-term loans in Indian and foreign currency for importing
capital equipment and technical services. Loans sanctioned generally go towards purchase
of fixed assets like land, building and machinery;
ii) It subscribes to new issues of shares, generally by underwriting them or directly
subscribing the same;
iii) It guarantees loans raised from private sources including deferred payment;
iv) It provides technical and managerial assistance to industrial units, along with consultancy
services for new projects;
v) It provides assets on lease to industrial concerns. In other words, assets are owned by
ICICI but allowed to be used by industrial concerns for a consideration called lease rent.
vi) It provides merchant banking services.
vii) Rs. 5 lakhs is the minimum amount sanctioned by it to a single concern and normally it
does not go beyond the maximum limit of Rupees one crore.
Q.13 State the three rules for goal setting.
Ans. a. Business goals need to be relevant
- Business goals need to be actionable
- Business goals need to be achievable stretches
Q.14 Explain the inventory control technique based on Pareto’s Principle.
Ans.The inventory control technique known as ABC analysis builds on Pareto’s Principle. In ABC
analysis, a company reviews its inventory and sorts all SKUs into three categories, called “A” ,
“B” and “C” items. The typical breakdown might look like this: “A” inventory: 20 percent of
SKUs, 80 percent of value. “B” inventory: 30 percent of SKUs, 15 percent of value. “C” inventory:
50 percent of SKUs, 5 percent of value. Again, a particular company’s numbers may be different,
but we should be able to discern a similar kind of pattern.
Once a company has conducted its ABC analysis, it can devise an inventory-control strategy that
focuses effort where it will have the greatest effect. Items in “A” inventory are tightly controlled,
meaning the company keeps close tabs on how much it has in stock; pays close attention to
current demand and forecasts for future demand; and carefully plans its ordering so that it
neither runs out nor winds up with too much excess inventory that can become obsolete. Items in
“B” inventory are also watched closely, but the company reviews its ordering strategy less often.
Since items in “C” inventory are the least expensive, the company can order them in bulk and
exercise minimal controls; all that really matters is that the company doesn’t run out.
A – outstandingly important; B – of average importance; C – relatively unimportant as a basis for
a control scheme. Each category can and sometimes should be handled in a different way, with
more attention being devoted to category A, less to B, and still less to C.
Q.15 Annual quantity of jeans sold by a shop is 1200 at the rate of Rs. 100 per jeans. Cost of placing an order and receiving goods is Rs. 500 per order. Inventory holding cost is Rs. 30 per annum. What is the economic ordering quantity for the shop keeper?
Ans. Economic Ordering Quantity =
Thus as : annual usage = 1200
Order cost = Rs. 500
Annual carrying cost of 1 unit = 30
EOQ = = 200 Units
Q.16 Aditya Enterprises designed an innovative, electricity conserving, electric kettle after extensive research and development. Its unique features are;
- It boils water at a temperature set by the user.
- It whistles when the desired temperature is reached,
iii. Thus it saves electricity and is user friendly.
The enterprise finally started its operations. Now it requires finance for expansion, modernization and diversification so that the economies of scale and stability could be attained. Which source of Business finance should Aditya Enterprises go for? Give reasons for your answer.
Ans. Venture Capital.
Venture capital can best be characterized as a long-term investment discipline, usually
occurring over a five-year period that helps in the creation of:
- a) early-stage companies,
- b) the expansion and revitalization of existing businesses, and
- c) the financing of leveraged buyouts of existing divisions of major or privately owned
Thus, venture capital finance has the following features:
1) It is basically equity finance in relatively new companies.
2) It is long-term investment in growth-oriented small or medium firms.
3) Venture capitalist not only provide capital but also business skills to investee firms.
4) It involves high risk-return spectrum.
5) It is a subset of private equity.
6) The venture capital institutions have a continuous involvement in the business after
making the investment.
7) Such institutions disinvest the holdings either to the promoters or in the market.
Q.17 Clip Art Ltd.’ was an online store selling everything through its website. It wanted to enter into selling of readymade garments also so, it took over ‘Vastra’ , an online fashion retail store, which had a good market standing. After that Clip Art Ltd., combined both the businesses, and started a new business in the name of ‘Unique Cart Ltd.’ to synergise and capture a major share of the market.
They also decided to sell their new fashion products through company appointed distribution partners (retailers) in various parts of the country. This would give Unique Cart a much wider penetration into every corner of the country where delivery of online goods was impossible.
(a) Name and explain the ‘Enterprise Growth Strategy’ adopted by Clip Art Ltd..
(b) Identify the channel of distribution used by ‘Unique cart Ltd.
Ans. a. Merger- it is a combination of two companies into one larger company. The acquiring company takes over the assets and liabilities of the merged company. All the combining companies are dissolved and only the new entity continues to operate.
- Indirect – One level- it involves one middleman called ‘retailer’.
Q.18 State the elements of ‘Innovation Process’?
Ans. Analytical planning – Carefully identifying the product or service features, design as well as the resources that will be needed.
Resource organization – Obtaining the required resources, materials, technology, human or capital resources.
Implementation – Applying the resources in order to accomplish the plans and delivering results.
Commercial application – The provision of value to customers, reward employees, and satisfy the stake holders.
Q.19 Ramsaran, an auto-mechanic, was working in a city. But due to ill health of his parents he was compelled to shift to his village. The village was approximately two kilometres away from the nearest highway. He noticed that vehicles which broke down had no repair facility in that area. This gave him an idea to open an ‘Auto-Service-Centre’ for earning his livelihood. He motivated some young boys of his village to join him forproviding this service. He trained them and employed them in hisworkshop.
(a) Name the process which helped Ramsaran in converting an idea into an opportunity .
(b) Identify the form of business organization that Ramsaran decided to set up.
(c) State any two values communicated by Ramsaran to the society.
Ans. a. Sensing entrepreneurial opportunities
- Sole Proprietorship
- Empowerment of youth; self-sustenance or any other related value
Q.20 Dinesh has 1000 equity shares of a company. He wants to sell 500 of these shares. Which market should he approach? Write any three advantages of selling through such a market?
Ans. Secondary Market (Stock Exchange)
Advantages for an investor:
(a) Dissemination of useful Information: Stock exchange published useful information regarding price lists, quotations, etc., of securities through newspapers and journals. The interested persons buy and sell their securities on the basis of information provided by the stock exchanges.
(b) Ready Market : Persons desirous of converting their shares into cash may easily to do so through a member of stock exchange.
(c) Investors’ Interests Protected : Stock exchanges formulate rules and regulations so that members may not exploit the investors.
(d) Genuine Guidance about the Securities Listed : The investors can safely depend upon the information provided by the stock exchanges.
(e) Barriers of Distance Removed: Stock exchange remove the barriers of distance in regard to securities listed there. Without stock exchange the securities of a Delhi company may have a limited market in Delhi only.
(f) Knowledge of Profit or Loss on Investments: The investors can estimate the profit or loss on the total amount of investments in securities, by comparing the original amount invested and the price of securities on a particular day
Q.21 Naresh had an ice cream factory and was selling them locally. He has been doing good business for the past ten years. But with the entry of competitors, his business declined and he had to close down his business. Since he was an enterprising person, he decided to take up exclusive distribution of a popular international brand of ice-creams called ‘Icecone’. In return, he had to pay royalties to ‘Icecone’ and conform to their standardised operating procedures. Instead of the plastic cups which cause environmental hazards, ‘Icecone’ had biscuit cups and cones. To boost immediate sales, he decided to make an offer of ‘Buy two cups/cones for the price of one’ for the first ten days.
(a) Explain any one reason for the failure of Naresh’s initial business venture.
(b) Identify and state the concepts of ‘Enterprise Marketing and Growth Strategies’ discussed in the above para.
(c) Identify any one value which the business wants to communicate to the society.
Ans. (a) Lack of cash flow; Competition; Loss of market (any one)
(b). Franchising- It is 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 standard operating procedures.
(c). Environmental protection
Q.22 TheWinter Ltd. manufactures three products – Cardigans; Caps; Mittens. The variable expenses and sales prices of all these products are given below:
|Sales price per unit||Rs.200||Rs.100||Rs.75|
|Variable cost per unit||Rs.100||Rs.60||Rs.25|
The total fixed expenses of the company are Rs.55,000 per month. For the coming month, it expects the sale of three products in the following proportions:
Compute the break-even point of company in units and rupees for the coming month.
Ans. Contribution Margin per unit for each product:
Product Cardigans Caps Mittens
Sale price @ unit Rs.200 Rs.100 Rs.75
Variable cost @ unit Rs.100 Rs.60 Rs.25
Contribution Rs.100 Rs.40 Rs.50
Thus Contribution Margin per unit is calculated.
Now to calculate Weighted average Contribution Margin(CM) per unit
Cardigans CM × sales mix percentage + Caps CM × sales mix percentage + Mittens CM × sales mix percentage
100 × 20% + 40 × 50% + 50 ×30% = 20+20+15= Rs.55.
Thus Weighted average CM per unit is Rs.55
Break-even point in Units of sales mix = Total Fixed cost
Weighted average CM per unit
= Rs.55,000 = Rs.1000
Product Break-even in units
Cardigans- 1000×20 = 200 units
Caps- 1000×50 = 500 units
Mittens – 1000×30 = 300 units
Product break-even in Rupees
Product units at break-even point × price per unit
- Cardigans = 200 units × Rs.200 = Rs.40,000
- Caps = 500 units × Rs.100 = Rs.50,000
- Mittens= 300 units × Rs.75= 22,500
Q.23 Shweta, a student of fashion designing, was assigned a project of designing an eco-friendly dress, for the upcoming fashion week to be observed at her institute. She got a chance to visit her relatives in Madhya Pradesh, where she observed that the tribal wear their saree in a unique way. On further investigation, she found that they were using hand-woven cotton yarn. Getting an idea from there she designed a dress which was a fusion of western wear and saree.
Her dress won the first prize at the fashion week. She was motivated to start her own business. She arranged for the necessary finances and started a factory at Madhya Pradesh where the dresses would be prepared. She opened a boutique at a local shopping complex for sale. The boutique became a hit and a place known for style and classy designing.
(a) Identify and explain the ‘idea field’ from where the idea has been generated.
(b) Also explain and give one example each for four other idea fields which may generate useful product ideas.
Ans. (a). creative efforts- apart from applying creativity to spot and harness opportunities, it can also be developed to develop new products and services.
(b). (i) existing products or services- a great business idea combines skills with imagination and market demand. Eg., Improved packaging in chips to retain freshness
(ii) market driven or demand driven- one important method for generating ideas is to carry out market research. It is an organized manner to gather information about target markets and help to understand the latest trends. Eg., need for smart phones
(iii) Trading related- trading these days are not confined to ordinary grocer or distributor outlets. Eg., Flipkart
- Service sector- service sector is growing worldwide due to advancements in information and technology. Eg. Career counselling centers
- Natural resources- ideas can be generated on the basis of natural resources.
Q.24 Zero V Ltd was a company into manufacturing of water purifiers, water dispensers, packaged drinking water and hand sanitizers. They do a lot of research and development and would update their products on a regular basis. They also encouraged feedback and suggestions from the customers. Acting on one such suggestion, they decided to manufacture a water bottle with a built in water purifier called ‘Sure H2O’. They spent a lot of money on promoting the product with the tagline ‘Your child is secure with Sure H2O’. The target segment was- quality conscious consumers. It was priced in such a way that the cost of investment of the original research gets recovered from the customer. The product was an instant hit.
(a) Identify and explain the pricing strategy to be used by Zero V Ltd.
(b) State two advantages and two disadvantages of the pricing strategy identified in part (a)
Ans. a. Price Skimming- in this pricing technique the company charges a higher price for their products so that the initial cost spent on research and development can be recovered.
- advantages- helps in recovering research and development costs; catering to quality conscious customers
Disadvantages- the product will not sell if competitors introduce similar products at a lesser price; it is not a viable option if there are strict legal and government regulations; if the company has a history of introducing products on the skimming method, customers will not be interested to buy as they are aware that the price would eventually come down. (Any two)