Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 5 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Entrepreneurship Set 5 with Solutions
Time : 3 Hours
Maximum Marks: 70
General Instructions:
- This question paper contains 34 questions.
- The question paper contains 4 sections – A, B, C, and D.
- Part A contains multiple-choice questions.
- Part B -2 marks; Answers to these questions may befrom3o-40 words,
- Part C -3 marks; Answers to these questions may be from 50-75 words.
- Part D -5 marks; Answers to these questions may be from 120-150.
- Internal choice is given in the paper, there is no overall choke.
Part-A
Question 1.
Ecobrick is a company manufacturing bricks using recycled plastics. They have collection centers in various strategic locations all over the city and citizens are encouraged to sell their plastic products in these centres. This will save the environment in the long run. Also, it will promote the ideology of ‘Swachh Bharat’. It will generate good revenue for the company as it sources its raw materials from the general public for whom the used plastic products are scrap. Identify macro environment factors affecting the environment in the above case. (1)
(i) Ecological (ii) Economic
(iii) Political (iv) Social
(A) (i), (ii)
(B) (ii) only
(C) (ii), (iv)
(D) (iii), (iv)
Answer:
Option (A) is correct.
Explanation: Economic factors considers the economic environment that includes interest rates, inflation, business cycles, unemployment, disposal income, energy, availability, and cost. Ecological factors consider the ways in which the organisation can produce its goods or services with minimum environmental damage.
Question 2.
Kamini plans to establish a ready-made garments manufacturing unit specialising in trendy clothing for infants aged below one year. To identify the latest trends in baby fashion, she sought the assistance of a renowned trendspotter. However, upon realizing the high fee demanded by the trend spotter, Kamini decided to adopt an alternative method for trend spotting. She opted to directly engage with parents of newborns to gather insights and identify the prevailing trends. The method chosen by Kamini to spot the trend is: [1]
(A) Watch trends
(B) Think trends
(C) Talk trend
(D) Read trend
Answer:
Option (C) is correct.
Explanation: Talking to people is an equally important trend-spotting tactic. Entrepreneurs get involved in specific industry’s trade associations and attending events both online and offline. They also take advantage of social networking tools like social network websites and forums. They use social media or online surveys to get input on what customers are thinking1 buying, craving, and doing.
They also use social network websites and forums to identify key influencers and trendsetters in their target markets. In addition, they pay attention to ratings and review sites — not just what customers are saying about the business, but what they are saying about the competitor’s business.
Question 3.
Rajeev has just completed his B.Tech. and wants to start his own business, lie knew that the demand of electricity in India was increasing day by day, whereas its generation was not sufficient. Rajeev 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 very happy as India is also facing the problem of garbage disposal. Which source of idea-field had been generated by Rajeev and his friends? [1]
(A) Natural resources
(B) Existing product or services
(C) Demand-driven
(D) None of these
Answer:
Option (C) is correct.
Explanation: It is an organized effort to gather information about target markets or customers. Ideas can be generated based on existing demand in the market. It is a very important component of business strategy.
Question 4.
After doing her M.Com from ‘HArnachai Pradesh University of Shimla’, Komal went back to her village in Kinnaur district of Himachal Pradesh. She wanted to contribute for the development of women of her village, so she formed an organisation, the membership of which was open for all the women villagers on a voluntary basis by paying 500 only which would be treated as their capital. Komal knew that the land of her village was suitable for the farming of medicinal plants. So, she motivated the members of her organisation for growing medicinal plants in their fields under the guidance and help of the local agricultural department. It was also decided that the organisation will purchase the produce of each member and sell the same to drug manufacturing companies at a very good price which was not possible for the members individually. The main objective of the organisation is to render services to its members rather than to earn profit. A computer training centre for young boys and girls of the village was started under the guidance of Komal from the surplus of the profits. The process that helped Komal in developing an idea into an opportunity is: [1]
(A) Scanning the environment
(B) Sensing entrepreneurial opportunities
(C) Trendspotting
(D) None of these
Answer:
Option (B) is correct.
Explanation: Sensing entrepreneurial opportunities is a process of converting an idea into an opportunity and then into an enterprise. To sense an entrepreneurial opportunity, an entrepreneur employs his/her sharpened skills of observation,
analysis and synthesis to identify an opening.
The most important factors involved in the process are ability to perceive and preserve basic ideas which could be used commercially, ability to harness different sources of information, and vision and creativity.
Question 5.
Assertion (A): A properly planned follow-up procedure is helpful in dispatching errors and defects in the work
Reason (R): Inspection is the art of comparing materials, product or performance with established standards. [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:
Option (D) is correct.
Explanation: A properly planned follow-up procedure is helpful in dispatching errors and defects in the work because follow-up or expediting function relates to evaluation and appraisal of work performed. Follow-up element helps the entrepreneurs in developing ways to review the present situation with regard to materials, work in progress and finished goods, evolving ways to expedite the performance of those departments which lag behind, removing obstacles in the way of production by suggesting remedial measures.
Question 6.
Assertion (A): A company has an independent status.
Reason (R): A company cannot sign the documents. [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:
Option (B) is correct.
Explanation: A company has an independent status, different from its members. This implies that a company cannot be held liable for the actions of its members and vice-versa. Company has a distinct entity separate from its members. Being an artificial person, company cannot sign the documents. Hence, it uses a common seal on which its name is engraved. Putting the common seal on papers, is equivalent to that of signatures of a human being, making them binding on the company.
Question 7.
Which of the following are the rules when planning any advertising activity: [1]
(A) Aim
(B) Competitors
(C) Media
(D) All of the above
Answer:
Option (D) is correct.
Explanation: There are four rules to consider when planning any advertising activity i.e., before we prepare and book any form of advertising – Aim, target, Media, and competitors.
Question 8.
On the advice of an advertising agency, a company has worked upon managing public opinion by developing relations with the masses through sponsoring cultural and sporting events, maintenance of public parks, etc. Identify the promotion technique mentioned in the lines above. [1]
(A) Advertising
(B) Personal Selling
(C) Sales Promotion
(D) Public Relations
Answer:
Option (D) is correct.
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.
Question 9.
Which out of the following acts as a supervising and regulatory body to curb certain malpractices and to promote the securities market in India? [1]
(A) Primary Market
(B) Capital Market
(C) Stock Market
(D) Securities and Exchange Board of India.
Answer:
(B) Capital Market
Question 10.
“Deepika wanted to pitch in to reduce the financial crisis prevailing in her house and thought of working as a cook. She started working in three different households, one Punjabi, One Gujrati and one South Indian family. She soon realized that all the three households had different cuisines. It was indeed a challenge for her to learn the techniques of the cuisine. All the families greatly appreciated the time frame within which she had mastered the local cuisine. After working for them for a year, she decides to open a small eating joint of her own along with two of her friends by the name ‘Apna Bhoj’. They decided to share profits equally and that each of them will be liable for acts performed by the other two. Soon the eatery became a hot spot because of the fusion platter which was being offered.” Identify the kind of business organization which was set up by Deepika and her friends. [1]
(i) Sole proprietorship
(ii) Partnership
(iii) Company
(iv) None of these
(A) (i) only
(B) (ii) only
(C) (ii), (iii)
(D) (iii), (iv)
Answer:
Option (B) is correct.
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.
Question 11.
Jalaji an entrepreneur started a new website ‘Fashionate Shirts’ to sell ready-made shirts. In the first year he sold ₹ 1,200 shirts at the rate of ₹ 500 each. his cost of placing an order and receiving the shirts is ₹ ‘1,000 per order. If the Economic order Quantity is ₹ 200 shirts, what will be the inventory holding cost per year? [1]
(A) ₹ 100
(B) ₹ 80
(C) ₹ 40
(D) ₹ 60
Answer:
Option (D) is correct. ,
Explanation: EOQ = \(\frac{\sqrt{2 p d}}{\mathrm{C}} \)
D = Annual demand;
P = Ordering cost;
C = Holding cost
Or
200 = \(\sqrt{\frac{2 \times 1,200 \times 1,000}{C}} \)
Or
(200)2 = \( \frac{2 \times 12,00,000}{C}\)
Or
C = \(\frac{24,00,000}{40,000}\) or ₹ 60.
Question 12.
‘The Shop’ a ready-made garments retail shop sold ₹ 5,000 shirts at ₹ 200 per shirt during the year ended 31st March, 2014. Cost of placing an order and receiving goods is ₹ 1,000 per order. Inventory holding cost is ₹ 250 per year. What will be the ‘Economic Ordering Quantity’ of ‘The Shop’? [1]
(A) 100 units
(B) 150 units
(C) 200 units
(D) 300 units
Answer:
Option (C) is correct.
Explanation: Economic ordering quantity formula
= \(\sqrt{\frac{2 \mathrm{PD}}{\mathrm{C}}}\)
= \(\sqrt{\frac{2 \times 1,000 \times 5,000}{250}}\)
= \(\sqrt{40,000}\)
= 200 units
Question 13.
Reeta and Neeru have recently completed MBA from a renowned Management college and they want to open a management consultancy firm. They decided to prepare a business plan and discussed regarding the authority responsibility of each member, management team, salary to be given, etc. The type of business plan discussed above is: [1]
(A) Production plan
(B) Operational plan
(C) Marketing plan
(D) Human resource plan
Answer:
Option (B) is corred
Explanation: Operational plan is a system whereby there is achieved a smooth and coordinated flow of work within the factory so that, by planning and control of all the productive operations in all the stages of manufacture, the 1mai product is completed
in accordance with the plans.
Question 14.
‘Maharaja’ of Air India is: [1]
(A) Brand name
(B) Brand Mark
(C) Brand
(D) Trademark
Answer:
Option (B) is correct.
Explanation: A brand mark is that part of a brand which can be recognised hut cannot be vocalised i.e. is non-utterable. It appears in the form of a symbol, design, or distinct colour scheme.
Question 15.
A brand offered a wide range of products to its customers like namkeen, sweets, bakery items, etc. Identify the element of marketing mix being discussed above. [1]
(A) Product
(B) Price
(C) Place
(D) Promotion
Answer:
Option (A) is correct.
Explanation: Product refers to the item actually being sold. A product is anything that can be offered to a market for attention, acquisition, or consumption. it includes physical objects, services, personalities, places, organisations and ideas. The
character of the product may be seen differently by the buyer and the seller.
Question 16.
Assertion (A): Capital Markets play a very vital role of a financial intermediary.
Reason (R): The capital market satisfies the tastes of savers and the needs of investors through its various financial instruments. [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:
Option (B) ¡s correct.
Explanation: The role of transferring financial resources from the surplus units to the deficit units is what is referred to as “Financial intermediation. Capital Markets play a very vital role of a financial intermediately. A capital market may be defined
as an organized mechanism meant for effective and smooth transfer of money capital or financial resources from the investors to the entrepreneurs. Here, productive capital is raised and made available for industrial purposes.
Question 17.
Which of the following is an important source of equity for startup companies: [1]
(j) Trade credit
(ii) Venture capital
(iii) Stock exchange
(iv) Secondary market
(A) (iii) only
(B) (iii), (iv)
(C) (ii) only
(D) (ii), (iv)
Answer:
Option (C) is correct.
Explanation: 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.
Question 18.
A company initially decided to charge a price to cover the cost of producing a product plus a reasonable profit. Identify the pricing strategy adopted by the company. [1]
(A) Cost-plus pricing
(B) Penetration pricing
(C) Creaming pricing
(D) None of these
Answer:
Option (A) is correct.
Explanation: ¡n cost-plus pricing the manufacturer charges a price to cover the cost of producing a product plus a reasonable profit. The cost-plus method is simple, but it does not encourage the efficient use of resources. Cost-plus pricing is typically based on a manufacturing estimate.
Part-B
Question 19.
To provide a rational basis for developing goals and strategies for business growth an entrepreneur must do environmental scanning. What are the different sources to collect information for environmental scanning? State any two. [2]
Answer:
Following sources can be used:
(i) Records of companies.
(ii) Government publications and publications by financial institutions.
(iii) Verbal information from customers, wholesalers, retailers, etc.
Question 20.
How will you show that Market Mix is dependent on the type of product? [2]
OR
Explain External Expansion. How a firm goes for external expansion? [2]
Answer:
Market Mix is a set of activities, contribution of each is essential. It Ccm be explained using following example:
A toilet soap manufacturer can offer improved quality products at a lower price. He can keep such a low price that it can be termed as penetrating pricing. In the competitive market, he would be able to increase its sale by selecting adequate channels of distribution to reach maximum consumers. Promotion on T. V. and Newspapers for timely information will be beneficial in raising his saks. He will have to keep shorter distribution channel for ensuring easy and quick reach of the product to the customers.
OR
External Expansion means expansion beyond the boundaries of a company. It includes:
(i) Combination of two or more firms for expansion.
(ii) Combining to maximise profit and shape the policies in the best way.
(iii) Combining with competitive firms to reduce competition and increase profit, etc.
Question 21.
Unicon Ltd. and Nahata Communications provide cable TV networks in adjacent areas of Delhi. After some time the market was slowly taken over by big cable companies. Both Unicon Ltd. and Nahata Communications understood the competition and decided to come together so as to increase their markets 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. [2]
(i) Identify the enterprise growth strategy adopted by the two.
(ii) Explain any one benefit that the companies have after this arrangement.
Answer:
(i) Market extension merger
(ii) Benefits:
(a) Synergy: Synergy is the most essential component of merger. In mergers, synergy between the participating firms determines 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 suni 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 technology 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 competence: Companies also opt for Merger and acquisitions to acquire a competency or capability that they do not have and which the other firm does.
(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 face stiff competition from the existing companies and may have to battle out for a share in the existing market.
(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.
Question 22.
Sarabjeet Singh was living in a small village near Nainital. He had a car that could run on solar energy. The car would not be generally charged due to non-availability of sunlight. The petrol was too costly and he could not afford a petrol-run car. He thought of an idea and identified a chemical which when mixed with an oil would work like petrol. The cost of this chemical mixture was very low. He tested this idea, verified it, and found it valuable. Identify and explain the concept discussed in the above para. [2]
Answer:
The concept discussed is creativity. Creativity is important to entrepreneurs because it is the first stage in the process of innovation, providing the stimulus for opportunity discovery and new venture creation. As new entrants, entrepreneurs often justify themselves upon the same dimensions as creativity: novelty, usefulness, and appropriateness.
Arguably, one of the first tasks demanded of an entrepreneur is to manifest creative ability through the conception of new product-market opportunities and unique value propositions. From these initial acts of conception, entrepreneurs must build effective organizations that can repeatedly bring ideas to commercially valuable forms in order to survive and grow.
Question 23.
From the following information obtained from the financial statements of Bites Ltd., calculate Return on Equity.
Net Income earned – ₹ 1,00,000
Equity- ₹ 5,00,000 [2]
OR
Raja & Co. 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 investment ₹ 76,000. Calculate gross and net working capital. [2]
Answer:
Net Income
Return on Equity = \(\frac{\text { Net Income }}{\text { Equity }} \times 100 \)
= \(\frac{10,00,000}{5,00,000} \times 100\)
= 200%
OR
Gross working capital = Total current assets
= ₹ 50,000 + ₹ 75,000 + ₹ 1,00,000 +₹ 76,000 = ₹ ‘3,01,000
Net working capital = Gross working capital – Current liabilities
= ₹ ‘3,01,000 – ₹ 32,000 – ₹ 50,O00 – ₹ 44,000 – ₹ ‘61,000 = ₹ 1,14,000
Question 24.
An entrepreneur has decided to open a retail outlet to sell fast food items like pizza, noodles, etc. in the rural areas. Do you think his decision is correct? Give any one reason identifying the environmental factor helpful in taking this decision. [2]
OR
Air India is planning to expand its flights to Pakistan and Afghanistan over the next five years. Enumerate the political factors that it should consider as per the ‘PESTEL Model’ for the same. [2]
Answer:
No, his decision is not correct because in rural areas culture is not compatible with these types of food products. Social factor is helpful in taking this decision.
OR
- Government Stability and Political Climate
- hade and Foreign Policies
- Regulations and Policies in the Aviation Sector
- Geopolitical Relations and Regional Conflicts
Part-C
Question 25.
Give reasons for the following situations in business: [3]
(i) Operating cycle is shorter in trading business than in manufacturing business.
(ii) Shelf life has an impact on the inventory.
Answer:
(i) li one is involved in manufacturing activity, one starts with buying raw materials and packing materials, etc. These materials are then converted into the end product. During the time required to convert raw material to the end product, various expenses like wages, rent, salary, utility bill, insurance, etc are to be paid. Once the end product is ready, it has to be sold and money received from the customer.
(ii) Items like vegetables, fruits, flowers, and fish are perishable in nature. This calls for special storage conditions and equipment – cold storage, freezers, etc. These have financial implications. Similarly, some of the manufactured food or medicinal products have expiry dates – beyond which they are not fit for consumption. This imposes certain constraints on inventory management.
Question 26.
ABC Company, manufacturing shoes, has taken over XYZ Company which also manufactures shoes at a small scale. What do you think will be the reason for this kind of takeover? [3]
Answer:
- ABC Company may have decided to expand in terms of its production and wanted to raise its sales and turnover.
- ABC Company may have decided to expand its area of sales and so may be desirous to take over the marketing area of XYZ Company.
- ABC Company may have wanted to use the research and development of the XYZ company for raising its output and sales.
Question 27.
Is it essential for an entrepreneur to employ diverse types of Marketing Mix when dealing with the same product and market? Outline the factors that influence the determination of Marketing Mix. [3]
OR
Various approaches may be used by a company to promote its products. One of them is the use of mass media methods by designing a promotion strategy that aims at establishing brand identity. Identify and explain this approach. [3]
Answer:
Different entrepreneurs adopt different types of Market Mix for their products because of following:
(i) Target Group: Market Mix is different for different income groups. higher price is kept for the products meant for rich people. Also, the demands of the customers vary from place to place which ultimately depend on their paying capacity.
(ii) Promotional Method: Various types of promotional methods have varying effect in the same locality. Therefore, the selection of the method is guided by the locality.
(iii) Distribution: Mode of distribution is different for different areas. If it is city area, then road and air transport is preferable. If supply chain is longer, then it could be a mixture of air, water, and land transport. Easily reachable mode is preferred and selected.
OR
Above-the-line
These promotions use mass media methods. This type of promotion focuses on advertising to a large audience. It includes conventional media like print, online, television, and cinema advertising. The activities include advertisements in the press. They also produce online banner advertisements, place advertisements on billboards, and use their website to meet the needs of their consumers.
Question 28.
Explain how ‘Demand’ and ‘Project Innovation and Changes’ help an entrepreneur in assessing the market. [3]
OR
Explain the factors that help an entrepreneur to identify a product. [3]
Answer:
Market assessment begins with finding out the target market. Different elements which help an entrepreneur in assessing the market are:
- Demand Analysis
- Project Innovation & Changes
- Demand Analysis: It refers to finding out the willingness and ability of the persons to buy products or services.
Demand analysis is conducted to find out the answer to the following questions:
- Who are the customers – individuals or companies?
- What is the economic status of the customer?
- What is the purpose of buying the product?
- What is the expenditure pattern of the customer?
- What utility customer expects from the products? etc.
(ii) Project Innovation and Changes: Another important element of market assessment is to find out the products used by competitors and other players in the market. They must find out the products used by competitors and its merits and demerits. This analysis helps an entrepreneur in preparing a product with changes and innovation according to the want of customers.
OR
The factors that help an entrepreneur to identify a product are:
(i) Application and use: Ideas should be examined for their real-life use and application. If it already exists in the market, we will have to find out its present use, then we may think of modifying It for better use.
(ii) Level of operation: This is a crucial test for product/service identification. Depending on the use of the product/service the entrepreneur will produce it in a cottage industry or a small scale-industry or a large-scale industry.
(iii) Cost: What is the per unit cost of the product at particular level of operation? Whether this cost is comparable with that of other competitive products? These are some of the questions that have to be answered. This will ultimately decide the sale price.
(iv) Competition: Any product or service will face market competition at some stage. So, market competition should be assessed through a study of the trends in demand and supply.
(v) Technical complexity: What type of technology is required to produce the product? Whether training and application of such technology will be locally available or will it have to be supported from other places? What would be the position of supply of plant and machinery for such a technology? These are important issues that have to be resolved.
(vi) Annual turnover and profit margin: Ideas should also have to be examined on the basis of expected annual turnover. This will also indicate the market share of the product or service.
Question 29.
Rajeshwan an entrepreneur, wants to start an industry for groundnut oil in Kathiawar (Gujrat), where less employment opportunities are available. She wants to Fix a very low and reasonable price for this as compared to her competitors. She investigated that other oil factories are either making soya oil or sunflower oil which is not in much demand by the consumers of this area as they cannot afford to buy these oils. For this she prepares a comprehensive business plan that encompasses the entire range of activities being planned in the business. Identify the plan and explain why this is needed by an entrepreneur. [3]
Answer:
Business Plan: A business plan provides clarity in all the areas. It explains clearly what the entrepreneur is doing, why he is doing and how he will do it. Such a plan helps the entrepreneur to select right technology and resources. 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:
(i) helps in determining the viability of the venture in a designated market.
(ii) 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.
- Working out with legal requirements as desired by the government.
(iii) Helps in satisfying the concerns, queries, and issues of each group of people interested in the venture.
(iv) Provides room for self-assessment and self-evaluation, requiring entrepreneurs to think through various scenarios and plan ways to avoid obstacles.
(v) 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.
(vi) As the investor 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.
Part-D
Question 30.
Sheila has a degree in robotics and she loves to design products. She started her career in ‘Robotech’ which uses high-end technology in all their products. Her job profile included travelling a lot also, Whenever she travelled, she noticed that disabled people have difficulty in moving their wheelchairs from one place to another because in some places ramp is not provided and there is no way they can walk up the stairs. She came up with an idea of a wheelchair which can be used on stairs easily. She decided to quit her job and start her own company. She realized that her idea was the first stage in the process of innovation. Identify the concept and explain first four steps in its process. [5]
Answer:
Creativity Steps in Creative Process:
(i) idea germination: This is the seeding stage of a new idea. It is the stage where the entrepreneur recognizes that an opportunity exists. The idea germination takes place according to interest and curiosity of the entrepreneur according to which opportunity is explored and exploited to its best potential. Creative idea germinates besides the interest, due to the need of a specific problem or area of study.
(ii) Preparation: 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 the form of an idea. The entrepreneurs foresee the future of the product.
(iii) Incubation: This is the subconscious assimilation of information. This is the transition period. The entrepreneur starts thinking about the idea and implementation in her subconscious mind.
(iv) Verification: Also called the validation or testing stage. This is where the idea is verified to prove that it has value. This is the most difficult phase of creativity as obstacles begin to appear. This is the developing stage in which knowledge is developed into application.
Question 31.
What is penetration pricing method? Explain the advantages and disadvantages of this method of pricing. [5]
OR
Promotion is the method to spread the word about the product or service to customers, stakeholders and the broader public. In the light of this statement, explain the various approaches a company. can use to promote its products. [5]
Answer:
Penetration pricing: 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. 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.
The advantages of penetration pricing to the firm are:
- It can result in fast diffusion and adoption. This can achieve high market rates quickly. This can take the competitors by surprise, not giving them time to react.
- It can create goodwill among the early adopter’s segment. This can create more trade by word of mouth.
- It creates cost control and cost reduction pressures from the start, leading to greater efficiency.
- It discourages the entry of competitors. Low prices act as a barrier to entry.
- It can create high stock turnover throughout the distribution channel.
- This can create critically important enthusiasm and support in the channel.
Disadvantages of penetrating price method:
- 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.
- Another potential disadvantage is that the low profit margins may not be sustainable long enough for the strategy to be effective.
Question 32.
Trendspotting helps the entrepreneur to understand the market and produce goods or provide services in synchronization with the market trends. Explain the ways by which entrepreneurs can spot trends. [5]
OR
What key elements is covered under project description when the entrepreneur hopes to accomplish with the business? Explain in brief. [5]
Answer:
Spotting trends is indeed crucial for entrepreneurs to stay ahead in the market and align their products or services with customer demands. Here are several ways entrepreneurs can effectively spot trends:
(i) Read Trends: Entrepreneurs regularly read the leading publications and visit websites affecting their business, At first, they scan information from a wide variety of sources – from international news down to niche bloggers focused on specific aspects of their industry. There’s a tsunami of information available. They use tech tools like RSS feeds, e-mail newsletters or websites and forums to keep on top of all and get the information they want. They understand quickly which sources are valuable and which should be avoided.
(ii) Talk Trends: Talking to people is an equally important trend-spotting tactic. They get involved in specific industry’s 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.
(iii) 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? Trade shows are a great place to get trend ideas, too even if they are not looking to buy products, they attend many shows simply to see what’s hot.
(iv) 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 these information regularly, they will start to develop a “trend-spotter mind.”
OR
(i) Site: Location of enterprise, owned or leasehold land, industrial area, no objection certificate from the Municipal Authorities if required, needs to be determined.
(ii) Physical infrastructure: 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: 1ipe 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 suppliers of the same.
- Pollution control: The sewage system, and the sewage treatment plant, water harvesting system, arrangement for dumping and disposing of the other types of waste or emission all need to be discussed in the plan.
- Transport and communication system: Requirements for transportation and communication facilities, modes and means opted for, bottlenecks, etc. are duly
- Machinery and equipments: A complete list of items of machinery and equipments required indicating their size, capacity, type, cost and sources of their supply should be disclosed.
- Production process: A mention of the process involved in production, the installed licensed capacity of the plant, the technology to be used, whether available locally or imported, shifts involved, needs to be present in the business plan.
Question 33.
CleAir Pvt. Ltd. started a business of making three varieties of portable air purifiers for vehicles – Vincent, Banish, Exclusive. From the following information calculate breakeven point in units for the company and suggest which variety is most revenue generating. Fixed costs are ₹ 15,20,000. [5]
Vincent | Banish | Exclusive | |
Sales Price | 800 | 450 | 600 |
Variable cost | 400 | 150 | 200 |
Sales mix | 50% | 20% | 30% |
Answer:
Vincent | Banish | Exclusive | |
Sales Price | 800 | 450 | 600 |
Variable Cost | 400 | 150 | 200 |
Contribution | 400 | 300 | 400 |
Sales mix | 50% | 20% | 30% |
Contribution sales mix | 200 | 60 | 120 |
Weighted Contribution = 200 + 60 + 120= ₹ 380
BEP = Fixed cost/WACM = 15,20,000/380 = 4,000 units
In Units:
Vincent = 50% of 4,000 = 2,000 unit
Banish = 20% of 4,000 = 800 unit
Exclusive = 30% of 4,000 = 1,200 units
In Rupees:
Vincent = 2000 units x 800 = ₹ ‘16,00,000
Banish = 800 units x 450 = ₹ 3,60,000
Exclusive = 1,200 units x 600 = ₹ 7,20,000
The company is earning more revenue in the sale of Vincent.
Question 34.
“An entrepreneur can raise the required capital in the Primary Market” Explain any two methods of raising the funds in the Primary Market by an entrepreneur in detail. [5]
Answer:
Public issue: Public issue is the most popular method of raising capital these days by the entrepreneurs. This involves raising of funds directly from the public through the issue of prospectus. An enterprise organizing itself as a public limited company can raise the required funds commonly by preparing a prospectus.
When an entrepreneur offers shares to the public for subscription he/she is required to comply with all the restrictions and formalities pertaining to the initial issues, prospectus drafting, and launch.
(ii) Rights Issue: 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. Normally, through a circular, rights issues are proposed to the existing shareholders and in case they are not willing to subscribe, they can
renounce the same in favour of another person. This method of issuing securities is considered to be inexpensive as it does not require any brokers, agents, underwriters, prospectus or enlistment, etc.
(iii) Private Placement: Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation of India, Army Group Insurance, State Level Financial Corporations, etc. Entrepreneurs both from public limited and private limited sector bank heavily upon raising funds through the issue of varied financial instruments under this segment as at times they do not wish to disclose information to the open market.
(iv) Offer to Employees: In stock option plan or offer to employees, company offer its shares to its employees at a rate lower than market price. This method enables employees to become shareholders and share the profits of the company. Stock options or offering shares to the employees has gained much popularity in many countries of the world. This method leads to higher efficiency, low Labour turnover, better industrial locations, low floatation cost and wider/higher generation of funds.