Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 10 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Entrepreneurship Set 10 with Solutions
Time Allowed: 3 Hours
Maximum Marks: 70
General Instructions:
The question paper contains 4 sections – A, B, C, and D.
- Section A contains Multiple choice questions.
- Section B-2 marks
- Section C-3 marks
- Section D-5 marks
Section – A (18 Marks)
Question 1.
During the Pandemic, the worst hit were the families who were infected by the virus and had no source for home-cooked nutritious food. ‘Chilly Chillz’ is a multi-cuisine chain of restaurants operating throughout Delhi with a well-established network of outlets. The owner of the chain understood the concern and started serving a 3-course meal to such families on a payment basis. Interested customers had to log in to the website, select their location, and set their menu for the day. This service proved to be a great support for suffering families. What was the source of the generation of a basic idea? [1]
(A) Innovation
(B) Invention
(C) Problem
(D) Competition
Answer:
(C) Problem
Explanation: When a problem exists, an idea leads to a solution to resolve that problem, and it emerges as a business opportunity.
2. George Kutty has a coffee bean processing unit in Kerala. During the pandemic, he has learned different styles to make coffee. He started improvising his product and range to make coffee premixes in different varieties like Latte, Mocha, and Dalgona which will eventually help him to establish a place for his brand in the beverage industry. Identify the Idea field used by him.[1]
1. Market driven
2. Trading related
3. Creative efforts
4. Service sector
(A) 1,2
(B) 3 only
(C) 2,4
(D) 4 only
Answer:
(B) 3 only
Explanation: Creativity is an important and key component of the talents and abilities needed for an entrepreneur. Apart from applying creativity to spot and harness opportunities, it can also be applied to develop new products and services.
Question 3.
Amaze Ltd., is a company engaged in the manufacturing of air- conditioners. The company has four main departments Purchase, Marketing & Sales, Finance, and Warehousing. As the demand for the product grew, the company decided to recruit more employees in the Finance department and Marketing & Sales departments. Identify the component of the business plan which will help the Human Resource Manager to decide and recruit the required number of persons for each department. [1]
(A) Marketing Plan
(B) Financial Plan
(C) Manpower Plan
(D) Organisational Plan
Answer:
(C) Manpower Plan
Explanation: Manpower planning is a process by which an entrepreneur ensures that he/she has the right number of people, and the right kind of people with appropriate skills, at the right place and the right time to do work for which they are economically most suitable.
Question 4.
Assertion (A): To form a partnership firm at least two persons are required.
Reason (R): Partnership is created by an agreement among the persons who have agreed to join hands. [1]
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.
Answer:
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
Explanation: ‘Partnership’ is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business and share its profit. The persons who form a partnership are individually known as partners and collectively as a firm or partnership firm. A partnership is created by an agreement among the persons who have agreed to join hands. Such persons must be competent to contract.
Question 5.
A sole proprietorship form of business is best suited for which of the following businesses: [1]
(A) Large scale
(B) Medium scale
(C) Small scale
(D) None of these
Answer:
(C) Small scale
Explanation: Sole proprietorship is suitable where the market is limited, and localized and the customers give importance to personal attention. It is also considered suitable where the capital requirement is small and the risk involved is limited. It is also considered suitable for the production of goods and services which involve manual skills e.g., handicrafts, filigree work, jewelry, tailoring, haircutting, etc.
Question 6.
Madhu Chandan started the first Organic Mandya store in 2015 on the Bengaluru – Mysuru highway. Today it has grown into a Rs 25 crores turnover organic retail chain with eight stores. By buying agricultural products from the farmers and selling them at ‘Organic Mandya’ stores, Madhu has not only provided a direct market to the farmers but also has built a Rs 25 crores turnover organic retail chain. Which idea field has Madhu Chandan taken up? [1]
1. Natural resources
2. Service sector
3. Trading related
4. Existing products or services
(A) 1 only
(B) 2,3
(C) 3,4
(D) 3 only
Answer:
(A) 1 only
Explanation: Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agriculture, horticulture, mineral, animal husbandry, wind, sun, and human resource.
Question 7.
Hitesh, a fisherman, faced a lot of problems in selling the fish he caught. His entire community was facing this problem and most of the time they had to dump the fish they caught back into the sea. He read a newspaper article on how people have started ordering online for most of the essentials. He spoke to his fellow fishermen about selling their fish online and started their business with a small delivery truck and an app and slowly and steadily their business started to flourish. What trend has Hitesh spotted? [1]
(A) Read trends
(B) Watch trends
(C) Talk trends
(D) Think trends
Answer:
(A) Read trends
Explanation: Entrepreneurs 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, etc.
Question 8.
Fit Ltd., has become a well-known brand name in the field of fitness. Their products range from exercise equipment to protein powders. The company decided to launch a new product in the market which they believed will be a game changer. The company did a market survey amongst people from various age groups to know the acceptability of the product. What step of the creative process is the company right now in? [1]
(A) Idea germination
(B) Preparation
(C) Incubation
(D) Illumination
Answer:
(B) Preparation
Explanation: On the basis of the idea, interest and curiosity the need is adjudged by the entrepreneur and he starts looking for the answer to implement the idea. If the idea is to launch a new product or service then market research is conducted. That happens because the seed of curiosity has taken form of an idea, the entrepreneurs foresee the future of the product.
Question 9.
Priya started a beauty parlor business by the name Beauty Co. She is a professional expert who has a great knowledge of makeup and hair care. She spent ₹5,00,000 to open the parlor of which she invested ₹3,00,000 of her own money and borrowed a loan for an Interest rate per annum is 4%. Sales revenue per month is ₹35,000. The cost of goods sold is ₹10,000 per month. Fixed expenses per month are ₹15,000 (salary rent and utility ₹8,000), depreciation ₹1,000/- and tax @8%. What will be the value of the Return on Equity of Priya’s business? [1]
(A) 35.04%
(B) 34.00%
(C) 34.04%
(D) 36.00%
Answer:
(C) 34.04%
Explanation :
\(\mathrm{ROE}=\frac{\text { Net profit after Tax }}{\text { Equity }} \times 100\)Net Profit After Tax
= Gross Margin – Fixed Expenses – Depreciation – Interest – Tax
= 3,00,0000 – (₹15,000 × 12) – ₹1,000 – ₹8,000 – Tax
= 1,11,000 – \(\left(₹ 1,11,000 \times \frac{8}{100}\right)\)
= ₹1,11,000 – ₹8,880
= ₹1,02,120
\(\begin{aligned} \mathrm{ROE} &=\frac{\mathrm{₹} 1,02,120}{\mathrm{₹} 3,00,000} \times 100 \end{aligned}\)
= 34.04%
Question 10.
Assertion (A): The primary advantage an entrepreneur stands to gain by going public is access to capital.
Reason (R): Right issue does not require any brokers, agents, underwriters, prospectus or enlistment, etc.[1]
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion(A).
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.
Answer:
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion(A).
Explanation: The primary advantage an entrepreneur stands to gain by going public is access to capital. An entrepreneur can use the capital raised for a variety of purposes including growth and expansion, retiring existing debt, corporate marketing and development, and acquisition capital. A rights issue is a method of raising additional finance from existing shareholders by offering securities to them on a pro-rata basis i.e. giving them a right to a certain number of shares in proportion to the shares they are holding.
Question 11.
Calculate B.E.E from the following information: X Co. Ltd. earns profits during the year ₹1,03,017.00
Depreciation changed on : [1]
Building = ₹6,000
Fixtures = ₹5,000
Office equipment = ₹13,120
Total Depreciation = ₹24,120
Rent =₹1,20,000
Interest on Investment = ₹73,950
Fixed 40% of salary = ₹6,800
Fixed 40% of overheads = ₹60,000
Insurance = ₹52,830
(A) 80.62%
(B) 76.62%
(C) 56.62%
(D) 65.62%
Answer:
(B) 76.62%
Explanation:
\(\text { B.E.P. }=\frac{\text { Fixed cost } \times 100}{\text { Fixed cost }+\text { Profit }}\)
Fixed Cost = Depreciation + Rent + Interest on Investment + 40% of wages + Insurance + 40% of overheads
= ₹24,120 + ₹1,20,000 + ₹73,950 + ₹52,830 + ₹60,000
= ₹3,37,700
\(\begin{aligned}
\text { B.E.P. } &=\frac{₹ 3,37,700 \times 100}{₹ 3,37,700+₹ 1,03,017} \\
&=76.62 \%
\end{aligned}\)
Question 12.
Notes Limited is one of the leading pharmaceutical companies that engage in the research and development, manufacturing, marketing, and distribution of chemical and biological drugs for human and veterinary use as well as traditional herbal products, medical devices, and cosmetics. Notes Ltd. focuses on inventory control as they believe it is essential for an enterprise to ensure efficient, effective, and optimum use of raw materials and to know the availability of resources for production. To expand their business, they have taken short-term loans and at the same time have also invested in short-term capital. Why inventory control is essential for Nortis Limited? [1]
(A) To ensure efficient, effective, and optimum use of raw materials.
(B) To know the availability of resources for production.
(C) To ensure and make efforts to purchase raw materials in bulk to get quantity discounts.
(D) All of the above.
Answer:
(D) All of the above.
Explanation: The process of inventory control gives direction to the entrepreneur to take an important decision about the various activities like a production line and use of the material in the business. It is very essential for the enterprise to ensure efficient, effective and optimum use of raw materials and to know the availability of resources for production.
Question 13.
In which of the following stage of venture capital finance an entrepreneur presume that the idea has been transformed into a product and is being produced and sold? [1]
(A) Seed capital finance
(B) Start-up finance
(C) Second-round financing
(D) Pre-public stage
Answer:
(C) Second-round financing
Explanation: This is the first encounter with the rest of the market, the competitors and an attempt to squeeze the market and get some market share from the competitors. At this stage, larger funds than the other early-stage financing are required for expansion, modernization, and diversification.
Read the following passage on Me. Donalds and answer the questions from 14 to question 18
In 1954 a man named Ray Kroc visited a small restaurant in San Bernandino, California, where he admired the good and quick service, which dealt with a large number of customers. The restaurant belonged to the brothers, Maurice ‘a and Die ‘a McDonald, who, thanks to a small number of meals, low prices and streamlining of activities in the kitchen, increased the speed of customer service. Ray Kroc contacted the brothers, from whom he got permission to use their sales system and name.
These events were caused in 1955 in Des Plains, Illinois the first restaurant was opened, which gave rise to the entire chain of McDonald’s restaurants. Nowadays, it is the largest chain of fast-food restaurants today with a very established and valuable trademark. The main drive behind this success and rapid expansion was the franchising strategy, which helped them easily penetrate new markets and enlarge their target markets. Around 70 percent of the current Mcdonalds’ restaurants are run as independent franchisees.
The first franchised outlet was opened in the UK in 1986; however, there are now over 31,000 McDonald’s restaurants in over 119 countries. The major marketing moment for McDonald’s was provided by Ray Kroc, and the brand continues to be a major success by the hard work of its family of employees, suppliers, and franchisees. McDonald’s for years have continued with an extensive advertising campaign targeting children, healthy food, and convenience.
Question 14.
Identify the growth strategy adopted by Me. Donald’s: [1]
(A) Franchising
(B) Mergers
(C) Acquisitions
(D) None of these
Answer:
(A) Franchising
Explanation: Franchising allows entrepreneurs to be in business for themselves, but not by themselves. There is usually a much higher likelihood of success when an individual opens a franchise since a proven business formula is in place. The products, services, and business operations have already been established.
Question 15.
Which section of the Franchise agreement details the guidelines that the franchisee must legally follow? [1]
(A) Contract Explanation
(B) Operations manual
(C) Both (A) and (B)
(D) None of these
Answer:
(B) Operations manual
Explanation: The operations manual is the section of the agreement that details the guidelines that the franchisee must legally follow in operating the business as outlined by the franchisor. From time to time amendments may be made and the franchisee must be prepared to adjust operations accordingly. The franchisee needs to be aware that the contents of the document are confidential.
Question 16.
Which of the following types of franchising provide an organization with the right to manufacture a product and sell it to the public? [1]
(A) Product franchise business opportunity
(B) Manufacturing franchise opportunity
(C) Business franchise opportunity ventures
(D) None of these
Answer:
(B) Manufacturing franchise opportunity
Explanation: Manufacturing franchise opportunity is the type of franchise that provides an organization with the right to manufacture a product and sell it to the public, using the franchisor’s name and trademark. This type of franchise is found most often in the food and beverage industry. Most bottlers of soft drinks receive a franchise from a company and must use its ingredients to produce, bottle, and distribute the soft drinks.
Question 17.
Which of the following is an advantage of franchising to the franchisor? [1]
(A) Quick expansion
(B) Cost advantages
(C) Both (A) and (B)
(D) None of these
Answer:
(C) Both (A) and (B)
Explanation: 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. The franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise.
Question 18.
Which of the following is an advantage of franchising to the franchisee? [1]
(A) Product acceptance
(B) Management expertise
(C) Capital requirements
(D) All of the above
Answer:
(D) All of the above
Section – B (12 Marks)
Question 19.
Read the following newspaper article and explain any two points for the importance of a business plan. [2]
“Did you write a business plan when you started your firm? Have you kept this valuable management and planning tool current? Given the effects of the coronavirus pandemic and ongoing difficulties for many owners, your business plan is more essential to and vital for your success than ever. What does updating your business plan do for you and the success of your business? Lots of things.
As the headline states, a business plan provides a proverbial roadmap. Every time your business takes a turn that isn’t on your original map, you need to update the map or you’ll get lost. Your business plan also provides the proposal you make to potential advisors, lenders, partners and others to show how you run your business and what you’ll do with the resources, funds or support they provide.”
A business plan is a written description of your business’s future. That’s all there is to it a document that describes what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you’ve written a plan, or at least the germ of a plan. Business plans can help perform a number of tasks for those who write and read them.
They’re used by investment-seeking entrepreneurs to convey their vision to potential investors. They may also be used by firms that are trying to attract key employees, prospect for new business, deal with suppliers or simply to understand how to manage their companies better.
Answer:
The importance of a business plan is as follows:
(1) Helps in determining the viability of the venture in a designated market.
(2) Helps in providing guidance to the entrepreneur in organizing his/her planning activities such as:
- identifying the resources required
- enabling obtaining of licenses if required etc.
- working out with legal requirements as desired by the government.
(3) Helps in satisfying the concerns, queries, and issues of each group of people interested in the venture.
(4) Provides room for self-assessment and self-evaluation, requiring entrepreneurs to think through various scenarios and plan ways to avoid obstacles.
(5) 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.
(6) Business plan 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.
Question 20.
Explain the ability to perceive and preserve basic ideas as an important factor in sensing opportunities.
OR
Sensing entrepreneurial opportunities, converts an idea into an enterprise, what are the different types of opportunities an entrepreneur may find? [2]
Answer:
‘Ability to perceive and preserve basic ideas’ is an important factor in sensing opportunities. Spotting an idea often triggers the process of sensing an opportunity.
The following are the various sources that lead to the emergence of basic ideas.
- Problems
- Change
- Inventions
- Competition
- Innovation
OR
There are two types of opportunities:
- Existing opportunity: These opportunities already exist in the environment.
- Created opportunity: Such opportunities are created according to fashion, technological changes and tastes of customers.
Question 21.
Explain the term “Logo”.
OR
What is a Variable Pricing Technique? [2]
Answer:
“Logo” (short for Logotype) is an identifying symbol for a product or business. It can be any distinctive design, mark or sign which stands associated with the entrepreneur’s offering. “Logo” is an important feature or part of branding. Thus, a logo is a graphic image or emblem commonly used by commercial enterprises, organizations and even individuals to aid and promote instant public recognition.
OR
Variable Pricing Technique is one in which different prices are charged from different categories of customers. This method has both objectives viz. selling more quantity and also charging higher but at different times. e.g. Indian railways charge different fares for AC 3 tier, AC 2 tier, second class and general compartment.
Question 22.
‘Jagriti Ltd.’ are a manufacturer of cars for the last 15 years and was earning good profits. Recently, due to irregular supply of parts by the suppliers the company could not make timely delivery of cars to its customers. The customers canceled their bookings and there were very few new bookings. As a result, the sale of the cars declined and also the profits. The management of the company analyzed the problems and decided to take over those two firms because of whom the problems arose.
One of them was supplying engines and the other tires. The company also launched new discount schemes for its customers. It also decided to employ 200 unemployed young boys and girls to take up the cleaning operations using imported machines inside the factories as well as in the surrounding areas. Identify and explain the concept of ‘Enterprise growth strategy’ discussed in the above para. [2]
Answer:
The concept for growth strategy – Acquisition.
The acquisition is a corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own.
Question 23.
Rohan is a qualified certified entrepreneur who decided to start a company providing communication services. It was like a dream for him. For him, it was his first time managing a company so he has a fear of involving high risk. However, he lacked the necessary funds and experience to give shape to his idea. He knew that if he failed to get investment from the public, his dream would have not turned into reality. So, he made a detailed business plan and presented his idea to a company that is run by a group of professional investors. They were impressed by his business plan and decided to fund his start-up in exchange for an equity stake in the business. Identify and explain the source of finance used by Rohan. [2]
Answer:
Venture capital: Venture capital is a type of private equity capital provided as seed funding to early-stage, high-potential, high-risk, growth-up companies/ entrepreneurs who lack the necessary experience and funds to give shape to their ideas. Venture capital is an equity-based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for a minority shareholding in the business or the irrevocable right to acquire.
Question 24.
Is it mandatory to get a partnership firm registered? Justify the statement by giving two reasons.
OR
A production plan helps to plan the work in such a manner that one can clearly form an idea about some aspects. Name any four such aspects. [2]
Answer:
It is not mandatory to get a partnership firm registered. However, an unregistered partnership firm is denied the following rights: A partner cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act.
A right arising from a contract cannot be enforced in any court by or on behalf of the firm against any third party The firm or any of its partners can not claim a set off (i.e., mutual agreement of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.
OR
A production plan helps to plan a work in such a manner that one can clearly form an idea about:
- Production schedule
- Machinery, equipment requirement
- Plant layout
- Inventory requirement
- Manpower requirement
- The process involved in manufacturing
- Time and work-study
Section – C (15 Marks)
Question 25.
“Problems pose a challenge to entrepreneurs and in solving them, they find opportunities.” Give one example.
OR
What are the three steps involved in the process of sensing entrepreneurial opportunities? [3]
Answer:
A problem is a roadblock in a situation, something that sets up a conflict and forces you to find a solution. When an entrepreneur identifies such a roadblock, he/she is said to have identified the problem. For example, once a man from Kerala went on a tour to Punjab with his family. He liked Punjabi Food, but the other members of his family liked only typical Kerala food.
It was available hardly in one or two restaurants and was expensive too. This was a problem. The man from Kerala decided to find a solution. The result was that he started an inexpensive eating place that offered typical South Indian food. Soon people started visiting his place. Now they can satisfy their need of South Indian food. The enterprise was a great success. Thus, a problem gave rise to an opportunity.
OR
Three steps involved in the process of sensing entrepreneurial opportunities are as follows:
(1) Scanning of Environment: The word ‘Scan’ means to examine closely, especially in search of their relevant environment to identify opportunities and threats affecting them. It also develops an understanding of social, economic, political and other developmental factors in order to ensure that perceived entrepreneurial opportunity is compatible with them. It helps in knowing trends, issues and expectations from environmental changes.
(2) Generation of Ideas: While scanning the environment, entrepreneurs can take up a thorough study of different sources of business ideas to explore it. These ideas can come from talking to friends and others, customers, brainstorming, visiting shops, etc. It is mainly a conscious effort to explore ideas from several sources with the purpose to find a creative solution to a problem or need.
(3) Identification of Product or Services: After evaluating the various ideas received from various sources, an entrepreneur scrutinizes it and selects the best product or service for launching an entrepreneurial venture.
Question 26.
The business assets of an organization amount to ₹50,000 but the debts that remain unpaid are ₹80,000. What course of action can the creditors take if :
(i) The organization is a sole proprietorship firm.
(ii) The organization is a partnership firm with Anthony and Akbar as partners.
Which of the two partners can the creditor’s approach for repayment of debt? Explain giving reasons [3]
Answer:
(i) They can claim over the personal property of sole proprietor as his liability is unlimited.
(ii) Creditors can approach both Anthony and Akbar and they are liable to pay back in their profit sharing ratio but in case one of the partners becomes insolvent then a creditor can claim from other partners also.
Question 27.
Name and explain the element of the promotion mix that would help in clearing the stock of off-season goods. Also, mention the objectives of this element.
OR
How do the considerations related to the market have an impact on the selection of a distribution channel? Explain the impact of any three such considerations. [3]
Answer:
Sales promotion is the element of the promotion mix that would help in clearing the stock of off-season goods. Sales promotion, in a specific sense, refers to those sales actualities that supplement both personal selling and advertising and co-ordinate them and help to make them effective, such as displays, shows and expositions, demonstrations and other non-recurrent selling efforts not in the ordinary routine. Objectives of sales promotion are as follows:
- To introduce a new product into the market.
- To build a bridge between the entrepreneur and the customer.
- To encourage the sale of a product.
OR
Considerations related to the market are given below:
(1) Number of buyers: If the number of buyers is large then it is better to take the services of middlemen for the distribution of the goods.
On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.
(2) Types of buyers: Buyers can be of two types: General Buyers and Industrial Buyers. If more buyers of the product belong to the general category then there can be more middlemen. But in the case of industrial buyers there can be fewer middlemen.
(3) Buying habits: A manufacturer should take the services of middlemen if his/her financial position does not permit him/her to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.
(4) Buying quantity: It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantities.
(5) Size of market: If the market area of the product is scattered fairly, then the producer must take the help of middlemen.
Question 28.
Opera Tech Ltd. is a leading television manufacturing company. The company decided to join its operations together with AOne ltd., which is a bicycle manufacturing company, especially for sportsmen. After this merger, Opera Tech Ltd. would help the existing companies to extend their markets as both of these firms will share the goodwill. Identify and explain the type of merger they are engaged in. [3]
Answer:
Product extension merger: A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.
Question 29.
Finance is the elixir that assists in the formation of new businesses, and allows businesses to take advantage of opportunities to grow and expand. In light of this statement, discuss some of the sources available to an entrepreneur to raise finance. [3]
Answer:
Following are some of the sources available to an entrepreneur to raise finance:
(1) Capital markets: Capital Markets play a very vital role of a financial intermediately. A capital market may be defined as an organized
mechanism meant for the effective and smooth transfer of money capital or financial resources from investors to entrepreneurs. Here, productive capital is raised and made available for industrial purposes.
(2) Angel investor: A 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.
(3) Venture capital: Venture capital is a type of private equity capital provided as seed funding to early-stage, high-potential, high-risk, growth-up companies/entrepreneurs who lack the necessary experience and funds to give shape to their ideas. Thus, venture capital is an equity-based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for a minority shareholding in the business or the irrevocable right to acquire.
Section – D (25 Marks)
Question 30.
Anshu and Nishu started an identical business and performed identically in terms of sales, variable costs, fixed costs etc. The only difference is Anshu did not borrow any money and Nishu borrowed Rs. 6 lacs at the interest rate of 10% per annum. The total capital investment in both businesses is HO lacs. Their EBIT is ₹1.50 lac. Tax rate @ 20%.
(i) Calculate ROE and ROI for each business.
(ii) Comment on the results.
(iii)Which of these is a good indicator of own money? [5]
Answer:
(i)
(1) Nishu’s ROE is greater than Anshu’s ROE due to the presence of loan capital in the capital structure and ROI is lesser.
(2) For a true measure of how “own money” is being used ROE is a good indicator. ROI on the other hand gives an indication of how “total money” is being used
Question 31.
Explain Economic Order Quantity with the help of an example. [5]
Answer:
Economic Order Quantity (E.O.Q.) represents the quantity of an item that is most economic to order when fresh supplies are required. At such level of re-order, the total ordering cost and inventory carrying cost would be minimal. E.O.Q. is the quantity at which the ordering cost is equal to the inventory cost. At this level, total cost of inventory would be minimum and most favorable to the buyer. The quantity of a material that is ordered at a time is known as ordering quantity.
Economic order quantity is determined at that level where the total ordering cost and carrying cost is minimum.
E.O.Q. is calculated by the following formula:
\(\text { E.O.Q. }=\sqrt{\frac{2 \mathrm{PD}}{\mathrm{C}}}\)Where: D = Annual demand
P = Ordering cost per unit
C = Carrying cost per unit
Example: Annual usage = 600 units
Cost of placing order = ₹48
Price of material per unit = ₹20
Cost of storage = 20% of inventory value.
Calculate EOQ and the number of orders to be placed.
Solution:
\(\begin{aligned}
\mathrm{EOQ} &=\sqrt{\frac{2 \mathrm{PD}}{\mathrm{C}}} \\
&=\sqrt{\frac{2 \times 600 \times ₹ 48}{₹ 20 \times 20 \%}} \\
&=\sqrt{\frac{₹ 57,600}{₹ 4}}
\end{aligned}\)
=120 units.
No. of orders to be placed = Annual usage / E.O.Q.
= 600 units/ 120 units
= 5
Question 32.
The price depends on the cost of production, segment targeted, the ability of the market to pay, supply-demand and a host of other direct and indirect factors. Justify the statement by explaining the factors to be kept in mind while fixing the price of a commodity or service. [5]
OR
Assuming you plan to manufacture detergent powder. How would you assess the size of the market of your locality? What strategies would you adopt to sell the product? Explain any five.
Answer:
Factors to be kept in mind while fixing the price of a commodity or service is:
Pricing objectives: What is the objective of a firm, this is a very important factor that helps in deciding the price. If the objective of the company is profit maximization then generally high prices are fixed. If the objective is sales maximization then prices are kept low.
If the firm wants to capture big share in the market then it has to keep its price low so that more people are attracted to purchase the product. If the firm has to survive in a competitive market then it has to keep its price low by offering discounts.
Product cost: The price should be fixed in such a manner that it is able to cover the product cost. Product cost comprises of fixed cost and variable cost. Fixed cost remains constant irrespective of change in output whereas variable cost varies with change in output. In case of a competitive market, price should be so fixed that it is able to at least cover the variable cost.
Extent of the competition in market: When a firm does not face any competition then it can enjoy complete freedom in fixing the price. But when the competition is more then price is fixed keeping in mind the price of the competitor’s product. For example, Pepsi company cannot fix the price of its drinks without considering the price of Coke.
Customer’s demand and utility: When the demand of a product is inelastic then the company can fix up high prices but if the demand is elastic then the price has to be brought down. If the product is highly demanded then high prices can be fixed but in case of less demand low price have to be fixed. If a product is offering higher utility then a high price can be charged from the customer as the customer is ready to pay more. Whereas if utility is low, a high price cannot be charged.
Government and legal regulations: To protect the interest of the general public, the government has all the right to control the prices of various products and services by including the products in the category of essential commodities. With government intervention, there can be a check on a monopolist as he cannot charge an unfairly high price for essential commodities.
Marketing methods used: The price of the product also gets affected by various techniques of methods of marketing used to promote the products. If a company is using intensive advertising to promote the sale of product then it will charge high price. Other marketing methods which affect price of a product like type of packing, the salesman employed, customer support services, etc.
OR
There are large number of sales promotion techniques:
- Price off or Rebate: It is generally offered to the customers to increase sales. In this, the offered price is less than normal price.
- Samples: An entrepreneur can distribute free samples to the customers to get popularity for his new product.
- Premiums: In this technique, the seller offers a gift for each purchase. It means gift along with the product or inside the product package.
- Quantity Plus: In this seller offers more quantity at no extra cost.
- Coupons: In this, the seller offers a discount coupon on the purchase of a specified product. The holder of the coupons can go to the shopkeeper and get the product at a cheaper price.
- Contest: In this technique, the customers are invited to participate in a contest like writing a slogan on the product, suggesting a good name for a new product, and gaining awards for the best one. Such contests are held through radio, T.V., newspapers, magazines, etc. e.g., two free air tickets to Malaysia.
- Buying Allowance: Special discounts are offered to trade for a specific period.
- Display of Goods: In this, the goods are displayed attractively and artistically in the windows of their shop by the retailer. A special display of goods like banners, etc. can be done which helps the retailer to provide brief information of the available product with him.
Question 33.
Shalini Enterprises is dealing in Health Drinks. The enterprise has been manufacturing 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. She believed that by modifying the product she will be able to create a new product.
(i) Identify the concept and define it.
(ii) What are the different ways of doing it. [5]
Answer:
Trend spotting.
Trendspotting means the 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. Ways by which entrepreneurs can spot trends are as follows:
Read Trends: Entrepreneurs regularly read the leading publications and visit websites affecting their business. 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.
Talk Trends: Talking to people is an equally important trend spotting tactic. Talking to people is an equally important trend-spotting tactic. They get involved in specific industry trade associations and attend 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.
Watch Trends: Entrepreneurs go out in the marketplace to see what customers want. There’s no substitute for getting out in the marketplace. They make it a point to regularly go where their target customers hang out. 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?
Think Trends: Entrepreneurs absorb and think about what they have read, heard, and observed. They start making connections and observations which lead to business-boosting insight. As an entrepreneur begins gathering all this information regularly, they will start to develop a “trend-spotter mind.” As they absorb and mull what they’ve read, heard and observed, they’ll start to make connections and observations that will lead to business-boosting insights.
Question 34.
Explain two components of the Human Resource Plan.
OR
Explain the steps in preparing the marketing plan. [5]
Answer:
Estimating Type of Manpower Planning: Human Resource Planning begins with the estimation of manpower requirement which means finding out the number and type of employees needed by the organization in near future. Manpower requirement not only includes finding out a number of people needed but also the type of people required.
Type means what should be the qualification, and educational background of the people whom we need to appoint. While assessing the type of manpower required, a company should also make a policy regarding the number of people to be appointed from backward classes, women force, minorities, etc.
Procuring Personnel: It includes:
- Recruitment: It refers to inducing the prospective candidates to apply for a job. In this, the organization searches for suitable candidates and induces them to apply for the job. The end result of recruitment is receiving applications for jobs.
- Selection: It refers to choosing the most prominent and suitable candidates to perform the job. It involves conducting tests, and interviews so that suitable candidates can be selected.
- Training: It refers to equipping the employees with the necessary skill to perform the job. It also includes the overall growth and development of employees.
OR
The procedure for preparing the marketing plan involves the following steps:
Business Situation Analysis: This helps in finding out “where we have been”. Existing organizations review past performance and achievements of the enterprise but new ventures focus on:
- Personal profile of the entrepreneur.
- Emphasis on product development.
- What needs it satisfies.
- Any other enterprise/experience of the entrepreneur.
- Any other market segmentation if planned.
Identify the Target Market: The target market refers to the group of customers who will be our potential buyers. Divide the target customers into smaller groups as per consumers’ characteristics and buying situations and then develop a marketing plan integrating product, price, plan, and promotion.
Conduct SWOT Analysis: The entrepreneur must consider in the target market his enterprise:
- Strength
- Weakness
- Opportunities
- Threats
Establish Goals: The goal is the aim of an enterprise. A firm must set SMART goals.
Marketing Strategy: The marketing strategies involve action plans and decisions related to the four P’s i.e., product, price, place, and promotion.
Implementation and Monitoring of the Plan: It is important for an entrepreneur to be flexible and be prepared to make adjustments if necessary in the plan.