SCH

HOOL
L OF
F MA
ANAG
GEME
ENT
A
AND PUBL
P LIC ADM
A MINIS
STRA
ATION
N
MG
G305 NEW VE
ENTU
URE CR
REATIION
S
SEMES
STER 1, 2015
5
Time Allowed
A
d 3 hourss plus 10 minuttes for reading
100 marks (50%
(
off final grrade)
INS
STRUCT
TIONS
1. This exxam has tw
wo sectionns:
a. Section A
A: 28 mark
ks
B: 72 markks
b. Section B
n B, answ
wer any 6 out
o
2. Answeer all quesstions in seections A. In section
of the 9 questionns.
wers in thee answer booklet
b
proovided.
3. Write your answ
4. This exxam is woorth 50% of
o your ovverall mark
k. The min
nimum exxam
mark is
i 20/50.

SECTION A (28 marks). Section A is compulsory. Answer all questions.

Question 1 (20 marks)
CaseLooking for Capital
When Joyce and Phil Abrams opened their bookstore one year ago, they estimated it
would take them six months to break even. Because they had gone into the venture
with enough capital to keep them afloat for nine months they were sure they would
need no outside financing. However, sales have been slower than anticipated and most
of their funds now have been used to purchase inventory or meet monthly expenses.
On the other hand, the store is doing better each month and the Abramses are
convinced they will able to turn a profit within six months.
At present, Joyce and Phil want to secure additional financing. Specifically,
they would like to raise $100,000 to expand their product line. The store currently
focuses most heavily on how-to-do-it books and is developing a loyal customer
following. However, this market is not large enough to carry the business. The
Abramses feel that if they expand into an additional market such as cook books, they
can develop two markets that, when combined would prove profitable. Phil is
convinced that cook books are an important niche and has saved clippings from
national newspapers and magazines reporting that people who buy cook books tend to
spend more money per month on these purchases than does the average book buyer.
Additionally, customer loyalty among this group tends to be very high.
The Abramses own their entire inventory, which has a retail market value of
$280,000. The merchandise cost them $140,000. They also have at a local bank a line
of credit of $10,000, of which they have used $4,000. Most of their monthly expenses
are covered out of their initial capital with which they started the business ($180,000
in all). However, they will be out of money in three months if they are not able to get
additional funding.
The owners have considered investigating a number of sources. The primary
ones are a loan from their bank and a private stock offering to investors. They know
nothing about how to raise money and these are only general ideas they have been
discussing with each other. However, they do have a meeting scheduled with their
accountant, a friend, who they hope can advise them on how to raise more capital. For
the moment, the Abramses are writing a business plan that spells out their short
business history and objectives and explains how much money they would like to
raise and where it would be invested. They hope to have the plan completed before
the end of the week and take it with them to the accountant. The biggest problem they
are having in writing the plan is that they are unsure of how to direct their
presentation. Should they aim at a banker or a venture capitalist? After their meeting
with the accountant, they plan to refine the plan and direct it towards the appropriate
source.
(Source: Kuratko, 2014, p. 255)
Questions
(a) Would a commercial banker be willing to lend money to the Abramses? How
much? On what grounds do you base your answer? (10 marks)
(b) Would this venture have any appeal for a venture capitalist? Why or why not? (5
marks)
(c) If you were advising the Abramses, how would you recommend they seek
additional capital? Be complete in your answer. (5 Marks)

Question 2 (8 marks)
Fanmosa, a successful entrepreneur, owns a medium sized manufacturing firm,
Middle Pacific, which is engaged in the manufacturing of electronic components for
use in computers. The accountant of Middle Pacific estimates that the fixed costs
associated with manufacturing these electronic components will be $40,000; the unit
variable cost will be $900 and the unit selling price will be $1,300. Furthermore,
Middle Pacific will not accept any order that has a return on sales of less than 20
percent. Additionally, the accountant estimates that $4,000 can be classified as either
fixed or variable. Fanmosa wants to use this information to make a decision whether
to accept or refuse the contract and this will be based on the break-even point.
(a) If Fanmosa wants to use break-even analysis, but has trouble assigning some costs
as either fixed or variable, can break-even analysis still be used? Explain.
(3 marks)
(b) Calculate the break-even point. (5 marks)

SECTION B (72 marks)

Section B has 9 questions. Answer any 6 questions. Each question is worth 12
marks.
Question 1
(a) Why should a family business be interested in environmental sustainability?
Explain.
(b) Explain the economic contributions of family businesses on the economies of
Pacific Island countries.
Question 2
(a) What are the advantages of purchasing an on-going business? Explain.
(b) What is meant by the term franchise? What are the advantages and
disadvantages of franchising?
Question 3
(a) What is meant by triple bottom line accounting? What are its key components
and how are they interlinked?
(b) How does the NPV (net present value) work? What is the difference between net
present value and the internal rate of return? Explain.
Question 4
(a) How does the feasibility criteria and the comprehensive feasibility approach work
in the evaluation of ventures? Explain.
(b) What are the benefits and drawbacks of debt and equity financing?
Question 5
(a) What is a patent? Of what value is a patent to an entrepreneur? What benefits does
it provide?
(b) What are trade secrets? Why has Coco Cola benefitted from protecting its formula
through trade secrets rather than patenting the formula?

Question 6
(a) Identify and describe the stages of development for a new venture.
(b) What are some of the reasons why many entrepreneurs do not formulate strategic
plans or engage in strategic planning?
Question 7
(a) What are the main motivations for companies in going global?
(b) Explain the five different forms of entrepreneurial capital.
Question 8
(a) List and explain the critical factors in assessing a new venture?
(b) List the problems small businesses or family businesses encounter in Fiji?
Question 9
(a) List the advantages and disadvantages of a partnership.
(b) List the advantages and disadvantages of a company.
THE END