SAMPLE PAPER 5, CLASS 12 ENTREPRENEURSHIP; CBSE 2016

Standard
Q No. Content Marks
Q-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.

(1)
Q-2) 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

(1)
Q-3)  What is goal setting?

 

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

(1)
Q-4) 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.

 

Ans. Value Addition;

 

Businesses add value to goods and services by modifying them in a particular way to create a new product of greater value to customers.

(1)
Q-5) Who are angel investors?

Ans.  Business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity.

(1)
Q-6) 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.

 

(2)
Q-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.

(2)
Q-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.

(2)
Q-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

(2)
Q-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.

(2)
Q-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                                                              

(3)
Q-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

(3)
Q-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
(3)
Q-14) Madhusudhan, a sweet maker, collected milk from nearby village and preparedcurd, cheese and sweets. His dairy products gained popularity because of its pure ingredients. He became a hotspot of the area. Later he started to supply his products to other sweet shops and dairies in attractive packing and easy to take home packs of different sizes and quantities. Identify and explain the strategy for growth of business adopted by Madhusudhan.      (3)
Q-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
    (3)                                                                                                                           (4)
Q-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.

(3)
Q-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.

(3)
Q-18) Jagdish, a first time entrepreneur opened his first quick service restaurant (QSR) called ‘Wannaburger’. The business focused on providing high-quality burgers, mainly vegetarian. . Customers could order  food sitting at their tables unlike the other QSR’s where we have to first pay along with the order.. He focused on using the best quality ingredients to prepare the best possible burgers – a restaurant where the food does the talking. Wannaburger used a locally-based bio-packaging company to package their food, meaning everything could be either composted or recycled.

 

After the success of Wannaburger, Jagdish now wanted to grow further and expand the business. He decided to introduce a range of new breakfast bars as he felt that people do not find time to eat breakfast and that the bars can be easily carried anywhere. The bars were packed with essential nutrients and fruits to satisfy the taste buds of his customers. He priced this new range of bars high as they were prepared with special ingredients and very few brands were available in the Indian market.. The market did not pick up because the customers found them expensive.

 

1. Identify any two values conveyed by Jagdish.

2. What went wrong with his pricing policy?                                                 

(4)
Q-19) Initially this was a non–statutory body without any statutory power. However in the year of 1995,it  was given additional statutory powers by the Government of India through an amendment to the Securities and Exchange Board of India Act, 1992. In April, 1998 the it was constituted as the regulator of capital markets in India under a resolution of the Government of India. Identify the body and state its powers.                                            (4)
Q-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 efficiency.

 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.

(4)
Q-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

 

(4)
Q-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)
Q-23) An Entrepreneur who wants to start a manufacturing unit to make children’s clothing and supply them to stores such as Zara, Lifestyle and Shopper’s Stop wants your help in preparing a Business Plan. She has already prepared the sections covering ‘Introductory cover page’ and ‘description of the business venture’. Name and describe the next six sections that her Business plan must cover.

 

(6)
Q-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.

 

(6)
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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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