MGT602 Final Term Subjective 1

Subjective Questions

Q01. How should the entrepreneur take the interview from employees? (3M) (Page 96)

The interviewer should ask all of his or her questions at the beginning of the interview. It allows the interviewer to evaluate the candidate’s behavior. It avoids talking too much and not listening. Upon completion of the interview, the firm should be sure to check all of the candidate’s references.

Q02. Which type of loans the bank will issue if entrepreneur has creditworthy customers. (3) (Page 83)

Types of bank Loans

1Accounts Receivable Loans 2Inventory Loan 3Equipment Loans 4Real Estate Loans

Bank Loan of Creditworthy Clients

Accounts Receivable Loans

This type of loan is provided to entrepreneur on good basis and better past records especially if the client base is creditworthy. 1On this type of loan bank can finance 80% of the value. 2If receivable is not collectable ten factor bears the loss not the business. 3- Factoring cost is more than the securing cost.

Q03. It is said that advertising agencies are meant for the promotional tools. Why do you think that it is a correct statement? (5) Page 102

Advertising agencies can provide many promotional services. The advertising agency is an independent business organization composed of creative and business people who develop, prepare, and place advertising in media for its customers. The agency can provide assistance in marketing research. It is important to determine whether the agency can fulfill all of the needs of the new venture. A checklist of items that the entrepreneur may consider in evaluating an agency is useful. The agency should support the marketing program and assist the entrepreneur in getting the product effectively launched.

Q04. Loan application is called mini business plan, comment on this statement? (3M) Page 85

The loan application format is generally a "mini" business plan. a. This provides the loan officer with information on the creditworthiness of the individual and the ability of the venture to repay the loan. b. Presenting a positive business image and following procedure are important in obtaining the funds.

Q05. What is Small Business Administration Loans? In what circumstances they are used by entrepreneurs? ( Marks: 5 ) Page 85, 86

When an entrepreneur is unable to secure a regular commercial bank loan, an alternative is a Small Business Administration (SBA) Guaranty Loan. The SBA guarantees that 80% of the loan will be repaid to the bank by the SBA if the company can’t pay.

Both long and short-term loans can be guaranteed by the SBA.

1. A maximum loan period of 15 years on existing buildings and 20 years on new construction can be obtained.
2. For inventory, equipment, or working capital, a maximum of 10 years is available, although five years is the usual.
3. Once the application has been filled out, it usually is processed within 15 days.

For most SBA loans, there is no limit to the amount of loan money requested, but there is practical limit of $1 million.

1. The size limits of a small business vary from industry to industry.
2. The proceeds of the loans can be used for almost any business purpose.
3. The interest rates are negotiated between the entrepreneur and the bank, but there are subject to SBA maximums.

Q06. In which ways the law is flexible for S Type Corporation? (5M) Page 72

The new law provides more flexibility with regard to: a. Number of shareholders. b. Who can be allowed to own shares? c. The role of trusts as stockholders. d. The ability of S corporations to own more than 90 percent of stock of another corporation. e. Distribution of profits. f. Issuance of different classes of stock. g. Rules affecting the tax basis of incurred loses.

Q07. How the costs and profits may be managed by entrepreneur? Keeping in view the importance of interim income statement (5 marks). Page 99

An interim income statement helps to compare the actual with the budgeted amount for that period. The most effective use of the interim income statement is to establish cost standards and compare the actual with the budgeted amount for that time period. Costs are budgeted based on percentages of net sales. These percentages can be compared with actual percentages to see where tighter cost controls may be necessary. This lets the entrepreneur manage and control costs before it is too late.