SAMPLE QUESTION PAPER (2021-22)
ENTREPRENEURSHIP
TERM II
CLASS 12
Time: 2 Hrs Max. Marks: 35
GENERAL INSTRUCTIONS
1. The paper is divided into 3 Sections
2. Section-wise overall choice is given to the students.
3. Section A (2 markers) has 6 questions. Attempt any 4 out of 6
4. Section B (3 markers) has 5 questions. Attempt any 4 out of 5
5. Section C (5 markers) has 4 questions. Attempt any 3 out of 4
SECTION – A
1. Joseph invested ₹1,000 in a pizza restaurant in 2018 and sold the shares for a total of ₹1,200 one year later. While looking at the accounts, he wanted to calculate the return on investment for his restaurant. To calculate it, he divided the net profits by the investment cost. How much would be the return on investment for Joseph’s restaurant?
Ans. 20%
ROI = Earnings before interest and tax/Total investment x 100
= (₹1,200 – ₹1,000)/ ₹1,000 x 100
= ₹200/₹1,000 x 100
= 20%
2. What are the features of Angel investors? Give any two.
Ans Following are the features of angel investors:
(i) Most of the 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.
(ii) As angel investor bears extremely high risk and are usually subject to dilution from future investment rounds. They expect a very high return on investment.
(iii) Apart from investing funds, most angels provide proactive advice, guidance, industry connections and mentoring start-ups in its early days.
(iv) Their objective is to create great companies by providing value creation, and simultaneously helping investors realize a high return on investments.
(v) 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.
3. Unicon Ltd. and Nahata Communications provide Cable T.V. network in adjacent areas of Delhi. After some time, the market was slowly taken over by big cable companies. Both Unicon Ltd. and Nahata communications understand the competition and decided to come together so as to increase their market share. This strategy helped them in cost saving through economies of scale as they could cover more areas now. It led to the overall growth of both the companies. Identify and explain the enterprise growth strategy adopted by the two.
Ans. Market extension mergers: A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.
4. Give the meaning of tagline with the help of an example.
Ans. Taglines are simple but powerful messages that help to communicate an enterprise’s goals, mission, distinct qualities and so much more. Thus, a ‘tagline’ is a small text which serves to clarify a thought and is designed with a dramatic effect. Taglines can be presented in the form of questions, statements and exclamations. The whole idea behind the concept is to create a memorable dramatic phrase that will sum up the product.
Balsara Hygiene products, launched their ‘Promise toothpast in 1978 and took and aggressive stand against its competitors. It then secured the second highest market share. It was due to the tagline- “The unique toothpaste with time-tested clove-oil”. Other examples are Amul’s message – “A gift for someone you love”, Rasna – “I love you, Rasna”, “I m lov in it” – McDonald.
5. What is a vertical merger? How is it different from a horizontal merger?
Ans. Vertical merger: A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.
Example: A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger.
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 market share are much greater for merging firms in such an industry.
Example: A merger between Coca-Cola and the Pepsi beverage division, for example, would be horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with more market share.
6 Explain the different types of sales strategies.
Ans. Following are the two types of sales strategies:
(i) Direct: With the direct sales strategy, sales people attack the competition head on when talking to the customer. They talk about each feature of the competition’s product and compare it to theirs. The term “negative selling” refers to the direct sales approach.
(ii) Indirect: Indirect sales approaches apply more subtle techniques by demonstrating features and benefits not available with the competition’s products or services without ever mentioning them by name. this more sophisticated, positive sales strategy require research and analysis of the competition.
SECTION – B
7.
(i) Identify the type of diagram represented above
Ans. The diagram represents Operating cycle or the cash conversion cycle (CCC)
(ii) Analyse why different products will have different operating cycles.
Ans. Different products will have different operating cycles. If the conversion takes longer time then the cycle will be longer. For trading, where there is no manufacturing (or conversion), the operating cycle will be shorter. Longer the operating cycle, working capital quantum is more; shorter the cycle, less working capital is needed.
8. Calculate working capital of Raja & Co. which has the following items in its Balance sheet:
Stock – ₹50,000;
Trade creditors – ₹32,000
Debtors – ₹75,000;
Cash – ₹1,00,000;
Dividend payable – ₹50,000;
Tax – ₹44,000;
Short term loan – ₹61,000;
Short term investments – ₹76,000
Calculate gross and net working capital.
9. What are the qualities of a good brand name?
Ans. A good brand name should basically possess qualities of distinctiveness. It should have the capability to stand out amongst a host of competing names. Thus, in selecting a brand name, entrepreneur should ask himself/herself what he/she wants to achieve from it. While selecting a brand name, entrepreneur should choose a name which is :
(i) Short, simple and easy to pronounce
(ii) Noticeable, easy to recognize and remember.
(iii) Pleasing, impressive when uttered.
(iv) Neither obscene, negative, offensive or vulgar.
(v) Adaptable to packaging, labelling requirements, to different advertising media and languages.
(vi) Linked to product, symbolically eye catching.
(vii) Contemporary, capable or being registered and protected legally.
10. Explain in brief the three ways in which an organisation can expand externally.
Ans. The three ways in which an organisation can expand externally are:
(i) Franchising: Franchising is as “an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures”. The person offering the franchise is known as franchisor. The franchise is the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to success than if he or she were to start a new business from scratch. Foundation of this relationship is the Franchise Agreement. A franchise agreement is the legal document that binds the franchisor and franchisee together.
(ii) Mergers: A merger is a combination of two companies into one larger company. This action involves stock swap or cash payment or the target. 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. In general, when the combination involves firms that are of similar size, ther term, consolidation, is applied. When the two firms differ significantly by size, the term merger is used. Merger commonly takes two forms. In the first form amalgamation, two entities combine together and form a new entity, extinguishing both the existing entities. In the second form absorption, one entity gets absorbed into another.
(iii) Acquisitions: 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. 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.
11. Identify the technique of sales promotion used in the below given situations.
(i) Monica took her sister Poonam for shopping to ‘Diva’ to buy her a dress on the occasion of her birthday. She was delighted when on payment for the dress, she got a discount voucher to get 20% off for a meal of ₹500 or above at a famous eating joint.
Ans. Useable benefits is the technique of sales promotion used by the company in the given situation. Under this method, coupons are distributed among the consumers on behalf of the producer. Coupon is a kind of certificate telling that the product mentioned therein can be obtained at special discount. It means that if a customer has a coupon of some product he will get the discount mentioned therein whenever he buys it. Possession of a coupon motivates the consumer to buy the product, even when he has no need of it.
(ii) Tanu took her friend Veena for shopping to ‘Mega Stores’ to buy her a hand bag for her birthday. She was delighted when on payment of the hand bag she got a wallet along with the hand bag free of cost.
Ans. Product combination is the technique of sales promotion used by the company in the given situation. Under this method, along with the main product some other product is offered to the customer as a gift, say offer of a pack of ½ kg of rice with the purchase of a bag of Atta (wheat flour), or ‘Get 128Kb memory card free with a Digicam’ or Buy a TV or 25+ and Get a Vacuum Cleaner Free or ‘100gm Bottle of Sauce Free with 1 kg of Detergent.’
(iii) An Air Purifier company is engaged in manufacturing of air conditioners and desert coolers. The company offers a wide range of products to meet the requirements of people from varied income groups. Recently the company has developed a new product, an air purifier that improves the quality of air by filtering out all allergens and microbes. The company introduced the product on two variants namely ‘Puro Tech’ and ‘Puro Tech Premium’. In order to persuade people to buy the product it is offering easy payment options in equal monthly instalments for different time periods. Moreover, every buyer will be offered ‘scratch a card’ option to win instant gifts like decorative items, T-shirts, etc.
Ans. Instant draws and assured gifts is the technique of sales promotion used by the company in the given situation. Under this method, a customer is asked to scratch a card on the purchase of a product and the name of the product is inscribed thereupon which is immediately offered to the customer as a gift. For Example, on buying a car when the card is scratched such gifts are offered – TV, Refrigerator, Computer, Mixer, Dinner Set, Wristwatch, T-shirt, Iron Press, etc.
SECTION – C
12. What is venture capital? State any four features of venture capital.
Ans. 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 minority shareholding in the business or the irrevocable right to acquire. It is more accurate to view venture capital broadly as a professionally managed pool of equity capital. Venture capital is a way in which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and obtain long-term capital gains.
Venture capital finance has the following features:
(i) Venture capital can be best characterized as a long-term investment discipline, usually occurring over a five-year period that helps in the creation of early-stage companies, the expansion and revitalization of existing businesses, and the financing of leveraged buyouts of existing divisions of major or privately owned enterprises.
(ii) It is basically equity finance in relatively new companies.
(iii) It is long-term investment in growth-oriented small or medium firms.
(iv) Venture capitalist not only provide capital but also business skills to investee firms.
(v) It involves high risk-return spectrum.
(vi) It is a subset of private equity.
(vii) The venture capital institutions have a continuous involvement in the business after making the investment.
(viii) Such institutions disinvest the holdings either to the promoters or in the market.
13. Anjali who is doing graduation from Delhi University has got an idea to make a safety gadget for college going girls which will give alert message to the registered numbers as well as nearest police stations, if the wearer is in any kind of danger. To execute her idea, she requires finance. She convinced one of her teachers who had the knowledge of making such gadget to provide her finance for feasibility studies. Identify and explain the source of funding used by Anjali.
Ans. The source of funding used by Anjali is Angel investors.
Angel investor is an affluent individual who provides capital for a business start-ups and early stage companies using a high-risk, high return matrix usually in exchange for convertible debt or ownership equity. 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. 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.
14. Read the following article from a Business Newspaper and answer the questions:
“Orchid Group of Builders were engaged in building and selling of flats, has decided to expand their business. To do so, they have decided to merge with Vipul Constructors, who were their biggest competitors. It is a merger occurring between companies in the same industry. They both have now decided that they would merge the companies with equal shares and form a new company by the name Vorchid Ltd.”
(i) Quoting the lines from the passage identify and explain the types of merger in this case.
Ans. 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 market share are much greater for merging firms in such an industry. Example: A merger between Coca-Cola and the Pesi beverage division, for example, would be horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with more market share. “It is a merger occurring between companies in the same industry. They both have now decided that they would merge the companies with equal shares and form a new company by the name Vorchid Ltd.”
(ii) Also explain any three reasons for mergers.
Ans. Some of the commonly identified reasons for mergers are:
(a) Synergy: Synergy is the most essential component of mergers. In mergers, synergy between the participating firms determine the increase in value of the combined entity. In other words, it refers to the difference between the value of the combined firm and the value of the sum of the participants. Synergy accrues in the form of revenue enhancement and cost savings.
(b) Acquiring new technology: To remain competitive, companies need to constantly upgrade their advantage and business applications. To upgrade technology, a company need not always acquire technology. By buying another company with unique technology, the buying company can maintain or develop a competitive edge.
(c) Improved profitability: Companies explore the possibilities of a merger when they anticipate that it will improve their profitability.
(d) Acquiring a competency: Companies also opt for mergers to acquire a competency or capability that they do not have and which the other firm does. For example, the ICICI ITC alliance made the retailer network and depositor base available to the merging entity. Similarly, IBM merged with Daksh for acquiring competencies that the latter possessed.
(e) Entry into new markets: Mergers are often looked upon as a tool for hassle-free entry into new markets. Under normal conditions, a company can enter a new market, but may have to battle out for a share in the existing market. However, if the merger route is adopted, one can enter the market with greater case and avoid too much competition. For example, the merger of Orange, Hutch and Vodafone took place to achieve this objective.
(f) Access to funds: Often a company finds it difficult to access funds from the capital market. This weakness deprives the company of funds to pursue its growth objectives effectively. In such cases, a company may decide to merge with another company that is viewed as fund-rich. For example, TDPL (Tamil Nadu Dadha Pharmaceuticals) merged with Sun Pharma since TDPL did not have funds to launch new products.
(g) Tax benefits: Mergers are also adopted to reduce tax liabilities. By merging with a loss-making entity, a company with high tax liability can set off the accumulated losses of the target against its profits gaining tax benefits. For example, Ashok Leyland Information Technology (ALIT) was acquired by Hinduja Finance, a group company, so that it could set off accumulated losses in ALIT books against profits.
15. What is penetration pricing method and enlist its advantages and disadvantages?
Ans. Penetration pricing is a pricing strategy where the price of a product is initially set at a price lower than the eventual market price to attract new customers. The strategy works on the expectations that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term. The price will be raised later once this market share is gained. For example, toothpaste sold in a remote rural area.
The advantage of penetration pricing to the firm are:
(i) It can result in fast diffusion and adoption. This can achieve high market rates quickly. This can take the competition by surprise, not giving them time react.
(ii) It can create goodwill among the early adopter’s segment. This can create more trade by word of mouth.
(iii) It creates cost control and cost reduction pressures from the start, leading to greater efficiency.
(iv) It discourages the entry of competitors. Low prices act as a barrier to entry.
(v) It can create high stock turnover throughout the distribution channel.
(vi) This can create critically important enthusiasm and support in the channel.
Disadvantages of penetrating price method:
(i) The main disadvantage with penetration pricing is that it establishes long-term price expectations for the product and image preconceptions for the brand and company. This makes it difficult to eventually raise prices. Some commentators claim that penetration pricing attracts only the switchers (bargain hunters), and that they will switch away as soon as the price rises.
(ii) Another potential disadvantages is that the low profit margins may not be sustainable long enough for the strategy to be effective. Profit margin is low in the price fixed by such method. This profit may not be sufficiently compared to the cost of production and promotion.
(iii) This method is applicable only to the products and services which have high price elasticity. Thus, it is not applicable to all the products.
(iv) Turnover of the enterprise increases tremendously. Such enterprises have to prepare themselves for a situation of more financial requirements.