Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 4 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Entrepreneurship Set 4 with Solutions
Maximum Marks: 70
Time Allowed: 3 Hours
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.
Hindustan Lever launched small sachets of shampoos and other products realising the easiness to carry them and storing them. This increased the sales of the firm as the customers’ wants were fulfilled. Identify the importance of environmental scanning in above statement. [1]
(A) Early warning signals
(B) Customer focus
(C) Strategy formulation
(D) Public image
Answer:
(B) Customer focus
Explanation: Environmental understanding makes the management sensitive to the changing needs and expectations of the consumers. A keen watch on the trends in the environment would help sensitize the entrepreneur to changing technology, competition, government policies and changing needs of the customers. For example, trends in clothing.
Question 2.
An NGO after doing a laboratory test, found that the soft drink produced by an MNC contains the ingredients which are very harmful to health but the company has not mentioned them anywhere in the label of the product package. That NGO called a press conference and revealed the reports of the test for the product claiming that it contains harmful preservatives and also beyond the permissible limits and regular intake of such drink can cause cancer.
It was a breaking news on TV channels, newspaper, etc. As a result, people stopped consuming that drink. This gave a big shock to company’s sales and consequently its revenue decreased drastically in short time. This impaired and tarnished the company’s goodwill in the market and also reduced the sale of other products under same brand.
To overcome this situation, the top executive of the company decided to issue press release clarifying that the company has stopped using harmful stuff and label contains all the required information as per the law. The company also made multimedia presentation of its production process and future plans to promote its sales.
Identify the concept used by the company to rebuild its image and to remove negative publicity. [1]
(i) Advertising
(ii) Sales promotion
(iii) Public relation
(iv) Personal selling
(A) (ii), (iv)
(B) (ii) only
(C) (iii) only
(D) (i), (iv)
Answer:
(C) (iii) only
Explanation: Public relations is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation (or individual) and its (or their) public. Put more simply, public relations are about building good relations with the stakeholders (public) of the business by obtaining favourable publicity, building a good corporate image and handling or heading off unfavourable rumours, stories and events.
Question 3.
‘Ayush Generic Medicines’, a chemist shop sells generic medicines. On 15.2.2016 medicines as per the details given below were sold: [1]
| No. of customers | Per customer billed amount |
| 15 | 370 |
| 20 | 430 |
| 45 | 500 |
| 25 | 1000 |
| 95 | 1200 |
The average amount of medidnes sold per customer is
(A) ₹878.25
(B) ₹868.25
(C) ₹858.25
(D) ₹808.25
Answer:
(A) ₹878.25
Explanation:
| No. of customers | Per customer billed amount | Total billed amount |
| 15 | 370 | 5,550 |
| 20 | 430 | 8,600 |
| 45 | 500 | 22,500 |
| 25 | 1000 | 25,000 |
| 95 | 1200 | 1,14,000 |
| 200 | 1,75,650 |
Average amount of medicines sold per customer
= 1,75,650 / 200
= ₹ 878.25
Question 4.
“Aggressive entry of Reliance Jio has launched a big price war. With its free services, Jio has upset the bigger players. The Vodafone-Idea merged entity will only add fuel to the fire. Since the merged entity will have more resources, the telecom price war is going to get messier. Idea-Vodafone merger may lead to more consolidation.
Reliance Communications, Tata Teleservices and Airtel are already in talks for merger. Airtel has bought India operations of Telenor. Reliance is surely going to face stiff fight from the new biggies. The consumer will be the king.” Identify the type of merger stated in the above article. [1]
(A) Horizontal merger
(B) Vertical merger
(C) Conglomerate merger
(D) None of these
Answer:
(A) Horizontal merger
Explanation: A merger occurring between companies in the same industry is called horizontal merger.
Question 5.
The founder of Domino’s Pizza had a tough childhood, was raised in orphanages and hostel homes. In 1960 he and his brother borrowed $900 and bought a pizzeria. His brother left within a year, but he hung on, surviving bankruptcy and fire. He worked 18 hours a day seven days a week wholeheartedly making Domino’s Pizza, today it is one of the biggest MNC in the world and a household name. What type of business was Domino’s when it was started initially? [1]
(A) Partnership
(B) Joint stock company
(C) Sole proprietorship
(D) None of the above
Answer:
(A) Partnership
Explanation: A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. Thus, two or more persons may form a partnership by making a written or oral agreement to carry a business jointly and share its proceeds. The objective of the business is to make profits and distribute the same amongst partners.
Question 6.
Electronic Hub Ltd. is a company into manufacturing of electronic items and engineering goods. The company deals in diversified range of products. Which of the following is the best suited channel of distribution for the company? [1]
(A) Direct channel
(B) Indirect channel
(C) Short channel
(D) None of the above
Answer:
(B) Indirect channel
Question 7.
A factory is engaged in manufacturing plastic buckets of all sizes. The following information is available to you? What will be the variable cost per unit of a factory? [1]
Sales = ₹1,00,000
Direct labour cost (1,000 units) = ₹10,000
Direct material cost (1,000 units) = ₹25,000
Direct expenses (1,000 units) = ₹5,000
Fixed cost = ₹30,000
(A) ₹40
(B) ₹60
(C) ₹55
(D) ₹45
Answer:
(A) ₹40
Explanation: Variable Cost = Direct labour cost + Direct material cost + Direct expenses
= ₹10,000+ ₹25,000 + ₹5,000
= ₹40,000
Variable Cost per unit = ₹40,000 / 1,000
= ₹40 per unit
Question 8.
Priyam composed a music piece for a song and the lyrics were written by him. He wishes to legally protect his creation. He can get a: [1]
(i) Patent for lyrics and music piece
(ii) Copyright for lyrics and music piece
(iii) Copyright of the lyrics and patent for the music piece
(iv) Trademark for the complete song.
(A) (i), (ii)
(B) (ii) only
(C) (i), (iii), (iv)
(D) 4 only
Answer:
(B) (ii) only
Explanation: Copyright gives the creator of original work exclusive rights to it, usually for a limited time. It means apply to a wide range of creative, intellectual or artistic forms or work. For example, musical composition, literary work such as poems, plays etc.
Question 9.
A company produces calculators and sells 1,000 units of the same at ₹100 each. The variable cost of production is ₹60 per unit and fixed cost is T400 per annum. What will be the breakeven point of the company? [1]
(A) ₹2,000
(B) ₹1,000
(C) ₹3,000
(D) ₹l,500
Answer:
(B) ₹1,000
Explanation: Sales at Break Even Point
The sales of ₹1,000 are such that the business neither earns profit nor incurs a loss but is just able to pay its own way.
Question 10.
Assertion (A): The scanning of the environment helps to secure the future of the enterprise and avoid failure the entrepreneur.
Reason (R): Environment scanning is a careful monitoring of an organization’s internal and external environment. [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:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Explanation: Thescanningofthe environment helps the entrepreneur to spot the new opportunities that have a positive impact on the enterprise. At the same time, it also helps the entrepreneur to detect the negative factors that could negatively impact their enterprise. The entrepreneurs gather the information, and make the necessary changes in the various processes in their enterprise. This will help to secure the future of the enterprise and avoid failure.
Question 11.
ABC Ltd. decided to raise funds by issuing shares. The finance department felt that the company should offer the shares to existing shareholders on a pro-rata basis. Out of the following identify the method of raising the funds being suggested by the finance department: [1]
(A) Public Issue
(B) Right Issue
(C) Private Placement
(D) Offer to Employees
Answer:
(B) Right Issue
Explanation: Rights issue is a method of raising additional finance from existing shareholders by offering securities to them on pro-rata basis i.e. giving them a right to a certain number of shares in proportion to the shares they are holding.
Question 12.
Assertion (A): The net result of external expansion is the increase in business activities and broadening the present capital structure.
Reason (R): In the process of external expansion combination, two or more units engage in similar business or related process or stages. [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:
(D) Assertion (A) is false but Reason (R) is true.
Explanation: Internal expansion results from the gradual increase in the activities of the concern. The concern may expand its present production capacity by adding more machines or by replacing old machines with the new machines with higher productive capacity. The net result of internal expansion is the increase in business activities and broadening the present capital structure.
External expansion refers to business combination where two or more concerns combine and expand their business activities. In the process of combination, two or more units engage in similar business or related process or stages. Sometimes stages of the same business join with a view to carry on their activities or shape, their polices on common basis some other or in coordination for mutual benefit or maximum profits.
Question 13.
Assertion (A): At the breakeven level, total revenue is equal to total expenses.
Reason (R): Usefulness of break-even analysis continues to be the same whether you are operating a single product or multiple product business. [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: Breakeven point is the level of sales (or revenue generated) that equals all the expenses required for generating that revenue. It is not more than the expenses (i.e. no profit) nor is it less than the expenses (i.e. no loss). In other words, there is neither loss nor profit. Usefulness of break-even analysis continues to be the same whether you are operating a single product or multiple product business.
It helps in setting profit goal and sales target. In a manufacturing environment, it helps in determining the products that are not contributing to meet the fixed expenses and thus brings up the item for discussion in management meetings about its continuity.
Read the following passage and answer the questions from 14 to question 18.
Monica has just passed her class 12th with 98% percentage of marks. She wanted to start her own business but was unable to decide about the nature of the business. She is not sure of the type of business she should start. Her friend, Radhika, suggested her to seek the help of professionals. One day during the morning walk her grandfather fell down in the park and was injured. She observed that her grandfather often forgets to take his medicines. She thought that the same problem may be faced by other old people.
She got an idea from here to start a business to develop an instrument for old people that could be fitted with an electronic device connected to the mobile phones of the members of their family which could indicate the location of the old people when they go outside their homes. This device was to be kept in their pockets. She also thought to fit a timer in the instrument that could remind the old persons about the time of taking their medicines.
She also makes it a point to observe her grandfather sometimes during the morning walk to see the functioning of the device. She contacted a professional, as advised by her friend, who asked her to pay a big amount for providing the reports and industry updates. Therefore, she decided to search for the reports and industry updates herself. She scanned the relevant information from various national and international websites.
Question 14.
Which of the following concept described in the above para that helped Monica in structuring her idea for solving the problem? [1]
(A) Product Identification
(B) Environment scanning
(C) Creativity
(D) Idea generation
Answer:
(A) Product Identification
Explanation: Product identification is an entrepreneurial idea leading to a definite product after opportunity spotting and scanning of the environment. An idea should lead the entrepreneur to a definite product/service which he can sell. So, the first step is to obtain a concept of the product or service suggested by one idea.
Question 15.
Which of the following way is used by the Monica in spotting the trend? [1]
(A) Talk trend
(B) Read trend
(C) Watch trend
(D) None of these
Answer:
(B) Read trend
Explanation: Businessmen 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. At first, they can information from a wide variety of sources – from international news on down to niche bloggers focused on specific aspects of their industry.
Question 16.
Which one more way will help Monica in starting her business. [1]
(A) Talk trend
(B) Think trend
(C) Watch trend
(D) None of these
Answer:
(B) Think trend
Explanation: As an entrepreneur begins gathering all this information regularly, he will start to developing a “trend-spotter mind”. As entrepreneurs absorb and mull over what they have read, heard and observed, they will start making connections and observations that will lead to business – boosting insights.
Question 17.
After opportunity spotting and scanning of the environment, an entrepreneurial idea should lead to a ______. [1]
(A) Definite product
(B) Evaluate product
(C) Analyse a product
(D) None of these
Answer:
(A) Definite product
Explanation: After opportunity spotting and scanning of the environment, an entrepreneurial idea should lead to a definite product. An idea should lead the entrepreneur to a definite product/service which he can sell. So, the first step is to obtain a concept of the product or service suggested by one idea
Question 18.
Identify the trend spotted by Monica in the below mentioned lines:
“She also makes it a point to observe her grandfather sometimes during the morning walk to see the functioning of the device.” [1]
(A) Talk trend
(B) Think trend
(C) Watch trend
(D) Read trend
Answer:
(C) Watch trend
Explanation: Entrepreneurs 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? 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.
Section – B (12 Marks)
Question 19.
What is partnership form of business organisation?
OR
What is a Joint Stock Company? [2]
Answer:
A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. Thus, two or more persons may form a partnership by making a written or oral agreement to carry a business jointly and share its proceeds. Partnership is the outcome of a contract. There must be at least 2 persons to enter into contract to form partnership.
Minors cannot form a partnership firm as they are incompetent to enter into contract but can be admitted to the benefits of a running firm. If these people intend to do banking business, the maximum number can be ten otherwise twenty for the other business.
OR
According to section 3 of Indian companies act, 1956, “A company means a company formed and registered under this act or any previous act.”Thus, a company is an association of persons who contribute money in the shape of shares and the company gets a legal entity and enjoys a permanent existence. Company is a creation of law that is the birth of this artificial human being is by law and it can be put to death by law only.
Question 20.
“Unique Motors Ltd.” was a car dealer. It took over a car manufacturing plant”Speed Cart & Co.” and started a new business in the name of “Unique Cart Ltd.” To synergise and capture a major share of the market like other competitors, they decided to sell their cars through company appointed dealers (retailers) in various parts of the country. This would relieve the company from the burden of selling the cars while at the same time giving them control over the distribution process. Identify and explain the “Enterprise growth strategy”. [2]
Answer:
Merger: A mergerisa combination of two companies into one larger company. In merger, 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.
Question 21.
Read the following passage and identify and explain any two elements in the PESTEL model which is present in this passage.
Shahida, a student of school of Rug Weaving Institute, Turkey, visited her grandparents in Kashmir for the first time. Breathtaking mountain scenery, clear lakes, lush vegetation and magnificent forests mesmerized her. The valley is home to a rich biodiversity including a large number of bird species, many of which are unique to Kashmir. It is home to Yak and sheep that are taken care of by nomads.
Kashmiri lifestyle is essentially slow paced, and reflects religious diversity. Kashmiris are known to enjoy their music in its various local forms and the traditional dress of both genders is often quite colourful. Tulip, Saffron, dry fruits and artistic woodwork are its hallmark. She also observed that the government was stable and all the tourist places were well guarded by the army.
She found it to be an ideal place to start a unit for carpet weaving and employ local people to preserve the ethnic touch. After the devastating floods, a considerable population was rendered jobless; her unit would help to revive their economic condition. She started scanning and screening the environment and collected the information. [2]
Answer:
- Political: The political environment includes taxation policy, government stability and foreign trade regulations.
- Economic: The economic environment includes interest rates, inflation, business cycles, unemployment, disposable, income, energy, availability and cost.
- Social: The social/cultural environment includes population demographics, social mobility, income distribution, lifestyle changes, attitudes to work and leisure, levels of education and consumerism.
- Ecological: It considers the ways in which the organization can produce its goods or services with minimum environmental damage.
Question 22.
“Personal selling is a better method of sales promotion than advertising”. How? Explain with the help of any three points.
OR
Explain in brief inadequate due diligence result in failure of merger and acquisition? [2]
Answer:
Effective Promotional Tool: Personal selling is a very effective promotional tool, which helps in influencing the prospective buyers about the merits of a product and thereby increasing its sales.
Two-way communication: Salesman functions as the “eyes and ears” of the producers. He helps in improving the products and sales policies by passing on the information about the likings and disliking’s of customers.
Consumer Attention: Through personal selling it is easy to get the attention of customer as there is face to face interaction between salesman and customers.
OR
Due diligence is a crucial component of the merger and acquisition 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.
Question 23.
Naveen has just completed his B.Tech. and wants to start his own business. He knew that the demand for electricity in India was increasing day by day, whereas its generation was not sufficient. Naveen shared his views with some of his friends and they all decided to start the business of electricity generation. They experimented various methods and ultimately succeeded in electricity generation through garbage. They all were happy as India is also facing the problem of garbage disposal. [2]
(i) Identify and explain the source of ‘idea-field’ from where the idea had been generated by Naveen and his friends.
(ii) Also explain any one other source of Idea-fields with the help of example.
Answer:
(i) Creative Efforts: Creativity is an important and key component of the talents and abilities needed for an entrepreneur. A part from applying creativity to spot and harness opportunities, it can also be applied to developed new products and services.
There are basically five ways in which creative ideas can be generated:
- Develop a new product or service.
- Improve an existing product or service.
- Find a new process or resource for manufacturing a product.
- Find new markets for existing products or services. 5. Find a new use for an existing product or service.
(ii)Natural Resources: 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.
Existing products or services: Any great business idea combines skills with imagination and market demand. A business opportunity or idea often comes from everyday problems that someone solves. Successful businesses find a need and fill it by providing a service or product.
Market driven or demand driven ideas: Market research yields valuable data about trends of supply, demand, consumer preferences. It is a very important component of business strategy. Market research is a key factor to maintain competitiveness over competitors. Market research provides important information to identify and analyze the market need, market size and competition.
Market research, which includes social and opinion research, is the systematic gathering and interpretation of information about individuals or organizations using statistical and analytical methods and techniques of the applied social sciences to gain insight or support decision-making.
Trading related ideas: Trading these days is not limited to ordinary grocer or distributor outlets. With increasing consumerism, the scope and nature of trade has enlarged; local trade, import and export, e-commerce are all making trading a very wide area of enterprise. Trade, in simple terms,is buying goods and services and selling them to consumers at a profit. One big advantage that trading has over other types of businesses is that, it is easier to launch and less risky.
Service sector ideas: Entrepreneurial opportunities are not only restricted to the manufacturer. Service sector is the most growing field these days all over the world, thanks to emerging knowledge societies and advancements in Information and Technology. So new opportunities can be identified by understanding the linkages to different business activities. E.g., example, tourism.
Question 24.
Why are Capital Markets important for entrepreneurs?
OR
What are the additional obligations and reporting requirements of going public? [2]
Answer:
Capital Markets are the most important source of finance for the entrepreneurs as this market can:
- Mobilize the financial resources on a nation wide scale.
- Secure the required foreign capital and know how to promote economic growth at a faster rate.
- Ensure the most effective allocation of the mobilized financial resources.
OR
Some of the additional obligations and reporting requirements of going public are:
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. Increasing cost in complying with higher level of reporting requirements. Relinquishing some control of the company following the public offering. Suffering a loss of privacy as a result of media interest.
Section – C (15 Marks)
Question 25.
Purem Minds Ltd. was a company into manufacturing of water purifiers, water dispensers, packaged driving water and hand sensitizers. They do a lot of research and development and would update their product on a regular basis. They also encouraged feedback and suggestions from the customers. Acting on one suggestion, they decided to manufacture a water bottle with a built-in water purifier called “Wonderpure”.
They spent a lot of money on promoting the product with the tagline “Your child is secure with wonder pure.” 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.
(i) Identify and explain the pricing strategy to be used by Purem minds Ltd.
(ii) State any one advantage of the pricing strategy identified in part (i). [3]
Answer:
(i) Price skimming method:
In this technique the company charges a higher price for their products so that the initial cost spent on research and development can be recovered. This strategy is often used to target “early adopters” of a product or service. Early adopters generally have a relatively lower price-sensitivity.
This can be attributed to their need for the product outweighing their need to economics, a greater understanding of the product’s value, or simply having a higher disposable income. This strategy is employed only for a limited duration to recover most of the investment made to build the product.
(ii) Advantages of skimming price:
Price skimming helps the company in recovering the research and development costs which are associated with the development of a new product. If the company caters to consumers who are quality conscious rather than price conscious, then this type of strategy can work in a great way for a company.
Question 26.
State any three items of physical infrastructure that should be mentioned in the description of a business plan.
OR
What information is provided to the potential investor in organisational plan with a clear understanding of who controls the organisation and how other members will interact in performing their management functions? [3]
Answer:
Availability of the following items of infrastructure should be mentioned in the business plan:
Raw Material: Whether indigenous or imported sources of supply, etc.
Labour: Types of labour required, provision for their training, number of manpower required, etc.
Utilities: These include – Power, fuel, water, gas, electricity, etc. Business plan needs to dearly state:
- Type of utilities required
- Load sanctioned
- Sources and quality of water used, quantum of coal, coke, oil, etc. required and the supplies of the source.
Pollution Control: The sewage system, and the sewage treatment plant, water harvesting system, arrangement for dumping and disposing of the other type of waste or emission all need to be discussed in the plan.
OR
The organizational plan is that part of the business plan that describes the proposed venture’s form of ownership. The organizational plan is that part of the business plan that describes the proposed ventures opted from of ownership adequately mentioning:
The terms and conditions associated with the selected form. Lines of authority and responsibility of members of the new venture. The names, designation, addresses and resumes of the members. Stake of members in the organisation. Roles and responsibilities of each member. Procedure for solving conflicts/disputes amongst members. Forms of payment for the members of the organisation. Voting rights, managerial and controlling rights of the members.
All this information provides the potential investor with a clear understanding of who controls the organisation and how other members will interact in performing their management functions.
Question 27.
Healthy juice India Ltd. and ‘Asli Juice Ltd.’ are engaged in the production of fruit juice. Both the companies sell the juice in 1,000 ml tetra packs and are in direct competition. To avoid competition, the management of both the companies decided to merge and form a new company ‘Asli Health Juice India Ltd’. The new company decided to sell the fruit juice through the company owned outlets throughout the country.
Identify and explain the enterprise growth strategy. [3]
Answer:
Horizontal merger: A merger occurring between companies in the same industry. Horizontal merger is a business consolidation that occurs between firms which operate in the same space, often as competitors offering the same goods or service. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in marketshare are much greater for merging firms in such an industry.
The goal of a horizontal merger is to create a new, larger organization with more market share. If the merging companies’ business operations are very similar, there may be opportunities to join certain operations, such as manufacturing and reduce costs.
Question 28.
A business plan is a comprehensive project report which helps to understand the feasibility and viability of the proposed venture. In the light of the given statement, examine the relevance of the business plan. [3]
Answer:
The business plan is valuable to the entrepreneur, potential investors, venture capitalists, banks, financial institutions, new personnel’s suppliers, customers, advisors and others who are trying to familiarize themselves with the venture, its goals, and objectives. The business plan:
Helps in determining the viability of the venture in a designated market. Helps in providing guidance to the entrepreneur in organizing his/her planning activities as such:
- identifying the resources required
- enabling obtaining of licenses if required etc.
- working out with legal requirements as desired by the government.
Helps in satisfying the concerns, queries, and issues of each group of people interested in the venture. Provides room for self-assessment and self evaluation, requiring entrepreneur to think through various scenarios and plan ways to avoid obstacles. 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.
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.
Question 29.
“While one needs a good idea and a well laid out implementation plan, for the business to run successfully it needs adequate capital.” Justify.
OR
How does capital market satisfy firstly savers and at the same time investors? [3]
Answer:
Need for capital:
For procuring or investing in longer term assets – land, building, machinery, equipment etc. These are typically known as Fixed Assets. Once pressed into service, they last over a reasonably longer period. These are placed in service for carrying out the main activity of the business- production and sales or service etc. and are not traded or sold to receive money (except when they have outlived their life). In other words, money invested on these items does not result in direct cash inflow for the business.
For buying raw materials, packing materials, paying rent, insurance premium, utility bills, wages and salaries and for many other services and/or materials used in the production or service. In other words, this is the money needed for the day-to-day operations of the business.
OR
Capital market is a place where savers as well as investors get maximum satisfaction. The capital market functions as a link between savers and investors. It plays an important role in mobilising the savings and diverting them in productive investment. In this way, capital market plays a vital role in transferring the financial resources from surplus and wasteful areas to deficit and productive areas.
Section – D (25 Marks)
Question 30.
What is acquisition? Explain the types of acquisitions.
OR
What is the purpose of designing a Logo for a product or a business? [5]
Answer:
Acquisition: 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 beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both. An acquisition, also known as a takeover, is the buying of one company (the target) by another.
There are four types of acquisitions:
- Friendly acquisition: Both the companies approve of the acquisition under friendly terms. There is no forceful acquisition and the entire process is cordial.
- Reverse acquisition: A private company takes over a public company.
- Backflip acquisition: A very rare case of acquisition in which the purchasing company becomes a subsidiary of the purchased company.
- Hostile acquisition: Here, as the name suggests, the entire process is done by force. The smaller company is either driven to such a condition that it has no option but to say yes to the acquisition to save its skin or the bigger company just buys off all its share, thereby establishing majority and hence initiating the acquisition. it is more
OR
Logo gives an identity to a product or business. Its purposes are:
Logos are a critical aspect of business marketing. As the company’s major graphical representation, a logo anchors company’s brand. Corporate logos are intended to be the identity of an enterprise because of displaying graphically enterprise’s uniqueness. Through a set colour combination, fonts, images, impression and/or pattern, logos provide essential information about a company that allows customers to relate with the enterprise’s core brand.
Enterprises normally resort to logos as a short path for advertising and other marketing materials. Logos act as the key visual component of an enterprise’s overall brand identity.
Question 31.
‘Angel investors fill the gap in start-up or early stage financing between friends and family, by providing seed funding and formal venture capital.’ Analyze and justify the statement. [5]
Answer:
The job of an angel investor is invaluable. They fill the gap in start-up or early stage financing between “friends and family”, by providing seed funding and formal venture capital. Although it is usually difficult to raise more than a few thousands from friends and family, even the venture capitalist is least interested to make investments. Thus, angel investments are a common second round of financing for high-growth start-ups or early stage companies.
Most angel investors are current or retired executives, business owners or high net worth individuals who have the knowledge, expertise, and funds that help start-ups match up to industry standards. As angel investors bear extremely high risk and are usually subject to dilution from future investment rounds. They expect a very high return on investment.
Apart from investing funds, most angels provide proactive advice, guidance, industry connections and mentoring start-ups in its early days. Their objective is to create great companies by providing value creation, and simultaneously helping investors realize a high return on investments.
They have a sharp inclination to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs by making use of their vast experience.
Question 32.
“Sensitivity to environmental factors is crucial for an entrepreneur.” In the light of the given statement, examine the relevance of an environment of business.
OR
How many choices an entrepreneur has under ‘company’ form of organization to incorporate an eneterprise? [5]
Answer:
Sensitivity to environmental factors is crucial for an entrepreneur. If a company is able to adapt to its environment, it would succeed in the long run. For example, Sony is failing to understand the changing trends in mobile phones and therefore losing its market share. The benefits of understanding the relevant environment of business are:
Identification of opportunities to get first mover advantage: By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest. For example, Volvo, the Swedish brand, has 74% share in the luxury bus segment as it had entered India earlier.
Formulation of strategies and policies: It helps in identifying threats and opportunities in the market. These can serve as the basis of formulation of strategies to counter threats and capitalise on opportunities in the market.
Tapping useful resources: If the company has a thorough knowledge of the external environment, it can tap raw materials, technology and even financial resources from the market at economical prices, at the right time.
Better performance: Proper understanding of the various elements of the external environment is necessary to take timely action to deal with threats and avail opportunities for the purpose of improvement in the performance of the firm.
Sensitisation of entrepreneurs to cope up with rapid changes: A keen watch on the trends in the environment would help sensitise the entrepreneur to changing technology, competition, government policies and changing needs of the customers. For example, trends in clothing.
Image building: If a company is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the general public. For example, call-radio taxis with additional features like GPS systems, online booking etc.
OR
An entrepreneur, under the ‘Company’ form of organisation has a further choice to incorporate an enterprise either as a
Private company:
A private company has a minimum of two and a maximum of fifty members excluding its past and present employees. Restricts the right of its members to transfer shares. Prohibits an invitation to the public to subscribe for any shares or debentures of the company, or accept any deposits from persons other than its directors, members or relatives. Has a minimum paid up capital of one lakh rupees (subject to change). Uses the word ‘Pvt. Ltd.’ at the end of its name.
Public company:
Under Section 3(i) (ii) of the Companies Act, a public company is a company which is not a private company. By implication, a public company has minimum seven people to commence with no upper limit to membership. Does not restrict any transfer of shares Invites public to subscribe for its shares, debentures and public deposits. Has a minimum paid up capital of five lakh rupees. Uses the word ‘Ltd.’ at the end of its name.
Question 33.
The United Company manufactures three products Lipsticks, Eyeliners, Nail paints. The variable expenses and sales price of all these products are given below: [5]
| Lipsticks | Eyeliners | Nailpaints | |
| Sales price per unit | ₹200 | ₹100 | ₹50 |
| Variable cost per unit | ₹100 | ₹75 | ₹25 |
The total fixed expenses of the company are ₹50,000 per month. For the coming month, it expects the sale of three products in the following ratio:
Product X: 20%
Product Y: 50 %
Product Z: 70 %
Compute the break-even point of the company in units and rupees for the coming months.
Answer:
Contribution per unit for each product:
| Product | Lispsticks | Eyeliners | Nailpaints |
| Sale price p.u | ₹200 | ₹100 | ₹50 |
| Variable cost p.u | ₹100 | ₹75 | ₹25 |
| Contribution | ₹100 | ₹25 | ₹25 |
Calculation of weighted average contribution p.u.:
| Product | Contribution (₹) | Weight (%) | Weighted Avg. Cont. p.u. (₹) |
| Lipstick | 100 | 20 | 20.00 |
| Eyeliner | 25 | 50 | 12.50 |
| Nailpaint | 25 | 70 | 17.50 |
| Total | 50.50 |
Break-even of sales mix (in units)
=Total fixed cost/Weighted Average Cont. p.u.
=₹5000/₹50
Products break-even points in units:
Lipsticks = 1,000 units x 20% = 200 units
Eyeliner = 1,000 units x 50% = 500 units
Nailpaints = 1,000 units x 70% = 700 units
Break-even point in rupees:
Lipsticks = 200 units x ₹200 = ₹40,000
Eyeliner = 500 units x ₹100 = ₹50,000
Nailpaints = 700 units x ₹50 = ₹35,000
Question 34.
Vipul a new generation high tech farmer is involved in organic farming. He realised that there was a huge market for his fruits and vegetable as people have become health conscious and prefer to eat healthy food. Keeping in mind, he decided to open organic fruit juice corner outside central parks and in prominent malls in Jaipur. Now he needed, a ‘road map’ for himself to start the venture.
(i) Identify the term used for ‘road map’ by Vipul.
(ii) Why this road map is required? [5]
Answer:
Road map means business plan. It is required to understand the feasibility and viability of the proposed venture. The entrepreneur must make some important decisions and gather information about the external and internal factors so as to address the integration and coordination of effective business objectives and strategies related to his proposed venture. Planning is a process that never ends.
It’s an intellectual thinking process, with the organized foresight, the vision based on facts and experience, which is quite essential for an intelligent action. Planning bridges the gap between where we are standing and where we want to reach. This is possible only if the entrepreneur is capable of effectively planning where he/she is, and where he/she would like to be and how?
Some kind of a ‘game plan’ or a ‘road map’ is required to let the venture evolve from an early start-up to a mature business. Thus, an entrepreneur needs to workout in detail all the relevant external and internal elements involved in starting a new venture and then running it successfully. He/she needs to develop a road map for himself/herself called a “Business Plan”.