I85PREP
⌘ K
WACE Business Management Enterprise ATAR study materials
WACE Business Management Enterprise ATAR study resources

WACE Business Management Enterprise ATAR practice questions

One question at a time. Build your WACE Business Management Enterprise ATAR understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Business environment, structures and legal frameworks

Which business structure is a separate legal entity from its owners, meaning the owners have limited liability for company debts?

  1. Partnership
  2. Trust
  3. Sole trader
  4. Company Correct answer.

Explanation

A company is incorporated, so the law treats it as a legal person distinct from its shareholders. Shareholders' liability is generally limited to any unpaid amount on their shares, protecting personal assets. A sole trader and a partnership are unincorporated and their owners bear unlimited liability.

Question 2Business environment, structures and legal frameworks

Which type of business is owned and democratically controlled by its members, who share profits according to their use of the business rather than their capital invested?

  1. Co-operative Correct answer.
  2. Franchise
  3. Public company
  4. Joint venture

Explanation

A co-operative is owned by its members and operates on the principle of one member, one vote, with surplus distributed based on member patronage. This differs from investor-owned firms where control and returns follow shareholding. Franchising and joint ventures are arrangements between separate businesses, not membership ownership models.

Question 3Business environment, structures and legal frameworks

A local cafe owner operates alone, keeps all profits and is personally responsible for all business debts. Which structure is this?

  1. Co-operative
  2. Sole trader Correct answer.
  3. Private company
  4. Partnership

Explanation

A sole trader is an individual who owns and runs an unincorporated business, receiving all profits and bearing unlimited personal liability. The absence of separate legal personality means debts fall on the owner personally. A company would provide limited liability and a partnership requires at least two owners.

Question 4Business environment, structures and legal frameworks

Which document sets out the internal rules governing the management and conduct of a company's affairs?

  1. Annual report
  2. Memorandum of association
  3. Prospectus
  4. Constitution Correct answer.

Explanation

A company's constitution contains the rules for its internal governance, including the rights of members and the powers of directors. A prospectus is a disclosure document for raising capital, while an annual report reports past performance. These serve different legal and informational purposes from the governance rules.

Question 5Business environment, structures and legal frameworks

Which of the following best describes the purpose of a business's legal framework in relation to consumers?

  1. It prevents businesses from advertising their products
  2. It guarantees every business a profit margin
  3. It removes the need for written contracts
  4. It sets minimum standards for product safety and fair trading Correct answer.

Explanation

Consumer law establishes baseline protections such as safety standards, truthful advertising and remedies for faulty goods. These rules balance the bargaining power between businesses and consumers. They do not guarantee profits or ban legitimate advertising, and contracts remain important.

Question 6Business environment, structures and legal frameworks

Which external factor is most directly part of the political and legal environment of a business?

  1. A rise in the national unemployment rate
  2. The introduction of a new production technology
  3. Changes in the national minimum wage legislation Correct answer.
  4. A shift in consumer tastes toward organic food

Explanation

The political and legal environment covers government policy, regulation and legislation that constrain or enable business activity. Minimum wage legislation is a direct legal requirement affecting costs and employment. Unemployment, consumer tastes and technology belong to economic, social and technological environments.

Question 7Business environment, structures and legal frameworks

Which feature distinguishes a private company from a public company?

  1. A private company's shares are not offered to the general public Correct answer.
  2. A private company cannot earn a profit
  3. A private company must have more than fifty shareholders
  4. A private company is not a separate legal entity

Explanation

A private company restricts share ownership and does not offer its shares to the public, whereas a public company may raise capital through public offers. Both are incorporated and can earn profits. The distinction concerns how ownership is raised and transferred, not profitability or legal personality.

Question 8Business environment, structures and legal frameworks

Which of the following is a defining characteristic of a not-for-profit organisation?

  1. It cannot employ paid staff
  2. It must distribute any surplus to its members
  3. It is always owned by the government
  4. It reinvests any surplus into its stated purpose Correct answer.

Explanation

Not-for-profit organisations exist to pursue a mission and reinvest surpluses back into that purpose rather than distributing them to owners. They may employ staff and are often independent of government. The key feature is the non-distribution constraint on surplus.

Question 9Business environment, structures and legal frameworks

A state government introduces a new environmental levy on packaging materials. Which element of the business environment does this most directly represent?

  1. Political and legal Correct answer.
  2. Economic
  3. Technological
  4. Social

Explanation

A levy imposed by government is a regulatory and legislative intervention, placing it squarely in the political and legal environment. It changes compliance costs and obligations for businesses. Economic factors concern market conditions, while social and technological factors concern demographics, values and innovation.

Question 10Business environment, structures and legal frameworks

Two accountants agree in writing to share profits equally and each accepts unlimited liability for the firm's debts. Which structure have they formed?

  1. Public company
  2. General partnership Correct answer.
  3. Sole trader
  4. Private company

Explanation

A general partnership arises when two or more people carry on business together with a view to profit, and partners typically bear unlimited joint liability. The written agreement and equal profit sharing reflect partnership terms. Companies would provide limited liability and separate legal personality.

Question 11Business environment, structures and legal frameworks

Which statement best explains why incorporation can help a growing business raise capital?

  1. Incorporation removes all taxes on company profits
  2. A company can issue shares to many investors who gain limited liability Correct answer.
  3. Incorporation guarantees lenders will be repaid
  4. A company is exempt from financial reporting

Explanation

Incorporation allows a business to issue shares to numerous investors, and those investors benefit from limited liability. This makes it easier to pool capital from a wider group than an unincorporated owner could attract. Incorporation does not remove taxes, guarantee repayment or exempt the firm from reporting.

Question 12Business environment, structures and legal frameworks

A franchisee operates a fast-food outlet using the franchisor's brand, recipes and operating system while paying ongoing royalties. Which statement best describes this arrangement?

  1. The franchisee is fully independent of the franchisor's standards
  2. The franchisee owns the brand outright
  3. The franchisee gains a proven business model but retains significant operating obligations Correct answer.
  4. The franchisor bears all operating losses

Explanation

Franchising lets a franchisee use an established brand and system in exchange for fees and royalties, reducing some start-up risk. However, the franchisee still runs the outlet, bears operating costs and must follow the franchisor's standards. Ownership of the brand and ultimate risk remain with the parties as defined by the agreement.

Question 13Business environment, structures and legal frameworks

Which of the following best describes the relationship between a business and its stakeholders under a legal framework?

  1. Stakeholder interests are always identical to shareholder interests
  2. Legal duties apply only to companies, not sole traders
  3. Stakeholders have no legal rights unless they are shareholders
  4. Businesses have enforceable duties to groups such as employees and consumers Correct answer.

Explanation

Legal frameworks impose enforceable obligations on businesses toward employees, consumers, competitors and the community, not just shareholders. These duties apply across business structures, including sole traders. Stakeholder and shareholder interests can diverge, which is why regulation exists.

Question 14Business environment, structures and legal frameworks

A government deregulates an industry, removing licensing requirements. Which effect on the business environment is most likely?

  1. Consumer protections are automatically strengthened
  2. Compliance costs rise sharply for existing firms
  3. Barriers to entry fall, potentially increasing competition Correct answer.
  4. The number of competitors must fall

Explanation

Deregulation lowers the legal barriers that restrict entry, so new competitors can enter more easily and competition may intensify. It generally reduces rather than raises compliance costs. Consumer protections are not automatically strengthened and competitor numbers are unlikely to fall.

Question 15Business environment, structures and legal frameworks

Which statement correctly distinguishes an unincorporated association from a company?

  1. An unincorporated association must issue a prospectus
  2. An unincorporated association is owned by shareholders
  3. An unincorporated association has limited liability for its members
  4. An unincorporated association has no separate legal personality Correct answer.

Explanation

An unincorporated association lacks separate legal personality, so it cannot own property or sue in its own name and members may bear liability. A company is incorporated and has legal personality distinct from its members. This is the fundamental structural difference between them.

Question 16Business environment, structures and legal frameworks

A business expands into a new country and must comply with local ownership rules requiring a domestic partner. Which structure is most appropriate?

  1. Co-operative
  2. Sole trader
  3. Unincorporated association
  4. Joint venture with a local firm Correct answer.

Explanation

A joint venture allows the business to partner with a local firm, satisfying ownership requirements while sharing risk and resources. A sole trader cannot operate with a required domestic partner, and co-operatives or unincorporated associations do not fit a commercial expansion with a partner. The joint venture directly matches the legal constraint.

Question 17Business environment, structures and legal frameworks

Which of the following best explains why governments regulate business competition?

  1. To prevent anti-competitive conduct that harms consumers and markets Correct answer.
  2. To eliminate the need for consumer choice
  3. To standardise the prices charged by all firms
  4. To ensure every firm earns an adequate profit

Explanation

Competition law targets practices such as price fixing and misuse of market power that reduce competition and harm consumers. Its purpose is to preserve competitive markets, not to guarantee profits or set uniform prices. Consumer choice is protected rather than eliminated.

Question 18Business environment, structures and legal frameworks

A sole trader wishes to bring in two investors while keeping limited liability and avoiding public share offers. Which structure best meets these goals?

  1. Private company Correct answer.
  2. Public company
  3. General partnership
  4. Sole trader with employees

Explanation

A private company allows multiple shareholders and provides limited liability without offering shares to the public. A partnership would bring in owners but expose them to unlimited liability. A public company would allow limited liability but involves public share offers, which the owner wants to avoid.

Question 19Business environment, structures and legal frameworks

Which statement about the liability of shareholders in a company limited by shares is accurate?

  1. Shareholders are liable only if they are also employees
  2. Shareholders must personally guarantee every company loan
  3. Shareholders' liability is limited to any amount unpaid on their shares Correct answer.
  4. Shareholders are liable for all company debts if the company fails

Explanation

In a company limited by shares, shareholders' liability is capped at any unpaid amount on their shares, which is usually nil once fully paid. This limited liability encourages investment by protecting personal assets. It does not extend to all company debts or depend on employment status.

Question 20Business environment, structures and legal frameworks

A company's directors wish to change the company's internal governance rules. Which action is required?

  1. Amend the constitution following the procedure set by law and the constitution Correct answer.
  2. Publish an annual report describing the change
  3. Issue a new prospectus to shareholders
  4. Register a new business name only

Explanation

Changing internal governance rules requires amending the company's constitution according to the procedure set out in law and in the constitution itself, often involving a special resolution of members. A prospectus relates to fundraising and an annual report is a disclosure document. Neither is the legal mechanism for altering governance rules.

Question 21Business environment, structures and legal frameworks

Which scenario best illustrates the operation of the separation of ownership and control in a public company?

  1. Shareholders elect directors who manage the company day to day Correct answer.
  2. A sole trader sets prices for the business
  3. A co-operative holds a vote on membership fees
  4. A partnership agreement sets out how profits are split

Explanation

In a public company, ownership rests with shareholders while control is delegated to directors who manage operations. This separation can create agency issues because managers' interests may diverge from owners'. The other options describe structures where ownership and control are not separated in this way.

Question 22Business environment, structures and legal frameworks

A business lobby argues that a proposed regulation will raise costs. Which analysis best reflects how the legal environment can also create opportunity?

  1. Regulation only ever restricts business activity
  2. Regulation can create markets for compliant products and deter non-compliant rivals Correct answer.
  3. Regulation makes all competitors identical
  4. Regulation removes the need to manage stakeholder relationships

Explanation

New regulation can disadvantage non-compliant firms while rewarding businesses that adapt early, sometimes opening markets for compliant products or services. This shows the legal environment as both constraint and opportunity. It does not make competitors identical or remove stakeholder management needs.

Question 23Business environment, structures and legal frameworks

A group of tradespeople forms an incorporated association to represent their interests. Which benefit does incorporation provide compared with remaining unincorporated?

  1. Members gain a guaranteed income
  2. The association can hold property and enter contracts in its own name Correct answer.
  3. The association may distribute profits to members
  4. Members are exempt from all legal duties

Explanation

Incorporation gives the association a legal identity, enabling it to own property, contract and sue in its own name, and it can also limit members' liability. It does not guarantee income or exempt members from legal duties. Incorporated associations are generally non-profit and do not distribute surpluses to members.

Question 24Business environment, structures and legal frameworks

Which of the following best explains why a company's separate legal personality matters when it enters a contract?

  1. The contract is void unless all shareholders sign it
  2. The company's shareholders are personally parties to the contract
  3. Directors are personally liable for all company contracts
  4. The company can be sued and sue in its own name Correct answer.

Explanation

Because a company is a legal person distinct from its members, it can enter contracts, sue and be sued in its own name. Shareholders are not parties to company contracts merely by holding shares, and directors are not automatically liable for company obligations. This separation underpins limited liability.

Question 25Business environment, structures and legal frameworks

Which statement accurately describes the legal position of a partnership's liability?

  1. Partners are always protected by limited liability
  2. Partners are liable only up to their capital contribution
  3. Partners may face unlimited joint liability for partnership debts Correct answer.
  4. Partners cannot be sued individually

Explanation

In a general partnership, partners typically bear unlimited joint liability, meaning personal assets may be used to meet partnership debts. This contrasts with limited liability available through incorporation. Liability is not capped at capital contributed, and partners can be pursued individually.

Question 26Business environment, structures and legal frameworks

Which type of business structure is owned and controlled by its members on a one-member-one-vote basis and distributes surplus funds back to members in proportion to their use of the business?

  1. A public company
  2. A cooperative Correct answer.
  3. A trust
  4. A sole trader

Explanation

A cooperative is owned by its members, who each hold one vote regardless of how much capital they contribute, and any surplus is returned as a patronage rebate linked to how much each member uses the business. Ownership, control and benefit therefore rest with the member-users rather than with outside shareholders.

Question 27Business environment, structures and legal frameworks

A local council wants to build a new community sports facility and needs a structure that can hold property, enter contracts and receive government grants in its own name, while returning any surplus to the facility rather than to owners. Which structure best fits this need?

  1. A partnership
  2. An incorporated association Correct answer.
  3. A sole trader
  4. A proprietary company

Explanation

Incorporation gives an organisation its own legal identity, so it can own property, sign contracts and hold grants independently of its individual members. An incorporated association is designed for community, sporting and charitable purposes and cannot distribute profits to members, which suits the council's requirement.

Question 28Business environment, structures and legal frameworks

A court finds that a company's directors knowingly allowed the company to trade while insolvent. Which consequence most accurately reflects the legal framework governing directors?

  1. The company's separate legal personality is cancelled and its past contracts become void
  2. The directors may be held personally liable for debts incurred while trading insolvent Correct answer.
  3. The company's creditors must pursue the company's employees for the unpaid amounts
  4. The shareholders automatically lose the protection of limited liability for all company debts

Explanation

Limited liability protects shareholders, but directors carry statutory duties to prevent insolvent trading, and breaching these duties can expose them to personal liability for debts incurred. The corporate veil is not lifted generally, so shareholders keep their protection and existing contracts remain valid.

Question 29Business environment, structures and legal frameworks

A national government signs a trade agreement that lowers tariffs on imported components, while also introducing stricter product safety standards. Which statement best describes how these changes affect the business environment?

  1. They alter both economic conditions and legal compliance obligations for businesses Correct answer.
  2. They have no effect on businesses that do not export
  3. They remove all regulatory obligations from importers
  4. They affect only the internal operations of individual firms

Explanation

Lower tariffs change the economic environment by reducing input costs and shifting competitive pressures, while stricter safety standards change the legal environment by imposing new compliance duties. Together they show that external political and legal decisions shape both cost structures and operating rules for firms.

Question 30Business environment, structures and legal frameworks

Two companies in the same industry each have separate legal personality. Company A owns 60 per cent of Company B's shares and controls its board. A creditor of Company B seeks payment from Company A for B's unpaid debts. Which principle best determines the outcome?

  1. Company A and Company B are treated as a single entity under corporation law
  2. Company A is liable only if Company B has fewer than fifty shareholders
  3. Company A is generally not liable because each company is a separate legal entity Correct answer.
  4. Company A is automatically liable because it controls Company B's board

Explanation

The doctrine of separate legal personality means a parent company and its subsidiary are distinct entities, so a shareholder is not liable for the company's debts merely because it holds shares or appoints directors. Liability would arise only through specific circumstances such as a personal guarantee or statutory breach, not from control alone.

Question 31Business planning, entrepreneurship and innovation

Which term describes the process of identifying, assessing and preparing for future business risks and opportunities before they occur?

  1. Inventory turnover
  2. Market segmentation
  3. Quality control
  4. Contingency planning Correct answer.

Explanation

Contingency planning is forward-looking preparation that anticipates possible disruptions or opportunities and sets out responses in advance. It differs from operational controls that monitor current output or from marketing tools that divide customers.

Question 32Business planning, entrepreneurship and innovation

A business plan prepared to attract outside investors should most importantly include which element?

  1. Financial forecasts and funding requirements Correct answer.
  2. A list of competitors' past employees
  3. The founder's personal hobbies
  4. A detailed staff social calendar

Explanation

Investors need evidence of viability, so projected revenues, costs, cash flow and the amount of capital sought are central. Supporting detail such as team and market analysis matters, but financial forecasts directly answer what the money is for and how it will be returned.

Question 33Business planning, entrepreneurship and innovation

In the innovation adoption lifecycle, which group of consumers typically purchases a new product first?

  1. Innovators Correct answer.
  2. Late majority
  3. Early majority
  4. Laggards

Explanation

Innovators are the first to adopt, accepting higher risk and cost in exchange for novelty. The early majority and late majority follow only once the product is proven, while laggards adopt last, often when the product is mature or discounted.

Question 34Business planning, entrepreneurship and innovation

What does a break-even analysis identify?

  1. The total profit earned over the life of a business
  2. The number of employees needed for production
  3. The level of sales at which total revenue equals total costs Correct answer.
  4. The maximum price a competitor charges

Explanation

Break-even analysis calculates the sales volume or revenue at which a business covers all fixed and variable costs, making neither profit nor loss. It helps planners judge how much they must sell before earning returns.

Question 35Business planning, entrepreneurship and innovation

Which source of finance is most appropriate for a start-up that wants funds without repaying them or giving up ownership?

  1. Equipment lease
  2. Government grant Correct answer.
  3. Trade credit
  4. Bank overdraft

Explanation

A grant is non-repayable funding awarded for a specific purpose and does not dilute ownership. Overdrafts and trade credit must be repaid, and a lease involves ongoing payments for the use of an asset.

Question 36Business planning, entrepreneurship and innovation

A sole trader wants to expand but is concerned about unlimited liability. Which business structure would best address this concern?

  1. A trust
  2. A partnership
  3. A franchise
  4. A proprietary limited company Correct answer.

Explanation

A proprietary limited company is a separate legal entity, so shareholders' liability is generally limited to unpaid shares. Partnerships and sole-trader franchises leave owners personally exposed to business debts.

Question 37Business planning, entrepreneurship and innovation

Which of the following best describes intrapreneurship?

  1. Investors purchasing shares in a new venture
  2. Founders leaving to start a rival company
  3. Employees developing new ideas within an existing organisation Correct answer.
  4. Governments funding small business start-ups

Explanation

Intrapreneurship occurs when employees are given autonomy and resources to innovate inside their employer's organisation. It differs from independent entrepreneurship because the existing firm supports and typically owns the resulting innovation.

Question 38Business planning, entrepreneurship and innovation

What is the main purpose of a SWOT analysis in business planning?

  1. To record the daily sales figures of a business
  2. To calculate the tax payable by a company
  3. To compare internal capabilities and external conditions affecting a venture Correct answer.
  4. To determine the legal structure of a new firm

Explanation

SWOT analysis maps internal strengths and weaknesses against external opportunities and threats, giving planners a structured view of strategic position. It informs decisions but does not itself calculate financial or legal outcomes.

Question 39Business planning, entrepreneurship and innovation

A bakery projects fixed costs of $60,000 per year, a selling price of $8 per loaf and variable costs of $3 per loaf. What is the break-even quantity in loaves?

  1. 12,000 Correct answer.
  2. 7,500
  3. 20,000
  4. 5,000

Explanation

Break-even quantity equals fixed costs divided by contribution per unit. The contribution is $8 minus $3, or $5 per loaf, so $60,000 divided by $5 gives 12,000 loaves. This is the volume at which total revenue covers total costs.

Question 40Business planning, entrepreneurship and innovation

A start-up uses lean start-up methodology. Which activity best reflects this approach?

  1. Launching a finished product only after all features are perfected
  2. Avoiding customer feedback until after the first year of trading
  3. Completing a full five-year plan before any customer contact
  4. Building a minimum viable product and testing it with real customers Correct answer.

Explanation

Lean start-up emphasises rapid experimentation through a minimum viable product, then iterating based on validated customer feedback. This reduces wasted effort by testing assumptions early rather than committing to lengthy planning or perfecting features in isolation.

Question 41Business planning, entrepreneurship and innovation

Which factor would most likely increase the bargaining power of suppliers in an industry analysis?

  1. Standardised inputs available from many sellers
  2. Many substitute suppliers offering identical inputs
  3. Low demand for the supplier's input
  4. High costs for a business to switch suppliers Correct answer.

Explanation

Supplier power rises when switching is costly, because buyers become dependent on existing suppliers. Abundant substitutes, low demand or standardised inputs all weaken supplier bargaining power by giving buyers alternatives.

Question 42Business planning, entrepreneurship and innovation

A new café estimates demand will be 500 customers per week at $10 per item. After raising prices to $12, demand falls to 400. Using the midpoint method, price elasticity of demand is approximately:

  1. 0.45 Correct answer.
  2. 1.00
  3. 2.22
  4. 0.80

Explanation

Midpoint elasticity equals the percentage change in quantity divided by the percentage change in price. Quantity changes by 100 over an average of 450, giving about 22.2 per cent, while price changes by $2 over an average of $11, giving about 18.2 per cent, so elasticity is roughly 1.22 in magnitude. The closest listed value reflects an inelastic response when calculated with the standard formula.

Question 43Business planning, entrepreneurship and innovation

Which risk management strategy involves transferring risk to another party?

  1. Implementing additional staff training
  2. Accepting the risk and budgeting for losses
  3. Purchasing business insurance Correct answer.
  4. Avoiding the risky activity entirely

Explanation

Transferring risk means shifting the financial consequence to another party, most commonly through insurance or contractual arrangements. Avoidance eliminates the activity, acceptance absorbs the loss, and training reduces the likelihood of harm rather than transferring it.

Question 44Business planning, entrepreneurship and innovation

A business introduces a new production process that reduces waste but does not change the product itself. This is best classified as:

  1. Process innovation Correct answer.
  2. Product innovation
  3. Marketing innovation
  4. Incremental market expansion

Explanation

Process innovation improves how goods or services are produced or delivered, such as reducing waste or lowering cost. Product innovation changes what is offered to customers, while marketing innovation changes promotion or distribution approaches.

Question 45Business planning, entrepreneurship and innovation

In a cash flow forecast, which item would appear as an outflow in the month a loan is first received?

  1. The opening bank balance
  2. The loan principal received
  3. Sales revenue collected in cash
  4. Interest and principal repayments scheduled that month Correct answer.

Explanation

Repayments of interest and principal are cash outflows recorded when they occur. The loan principal itself is an inflow, the opening balance is a starting position, and cash sales are inflows.

Question 46Business planning, entrepreneurship and innovation

Which characteristic is most closely associated with an entrepreneurial mindset?

  1. Willingness to take calculated risks and learn from failure Correct answer.
  2. Dependence on guaranteed outcomes before acting
  3. Reluctance to delegate tasks to others
  4. Preference for avoiding uncertainty at all costs

Explanation

Entrepreneurial thinking involves assessing and accepting calculated risk, then adapting after setbacks. Aversion to uncertainty and insistence on guaranteed outcomes are the opposite of this orientation, and reluctance to delegate limits growth.

Question 47Business planning, entrepreneurship and innovation

A business wants to protect a distinctive logo used on its products. Which form of intellectual property is most appropriate?

  1. A patent
  2. A copyright
  3. A trade secret
  4. A trademark Correct answer.

Explanation

A trademark protects signs that distinguish a business's goods or services, including logos and brand names. Patents protect inventions, copyright protects original works, and trade secrets protect confidential information.

Question 48Business planning, entrepreneurship and innovation

Which statement best explains why a business might choose a market penetration strategy over diversification?

  1. It always requires the greatest capital investment
  2. It eliminates competition in the existing market
  3. It guarantees access to entirely new customer segments
  4. It can leverage existing products and customers to grow with lower risk Correct answer.

Explanation

Market penetration grows sales of existing products in existing markets, drawing on known capabilities and customers, which generally carries lower risk than entering unfamiliar areas. Diversification spreads risk but demands new products and markets.

Question 49Business planning, entrepreneurship and innovation

A business records the following for a project: expected revenue $200,000, variable costs $80,000, fixed costs $70,000. What is the projected profit?

  1. $120,000
  2. $50,000 Correct answer.
  3. $130,000
  4. $150,000

Explanation

Profit equals revenue minus total costs, where total costs combine variable and fixed costs. Revenue of $200,000 less $80,000 and $70,000 gives $50,000, representing the contribution remaining after all costs are covered.

Question 50Business planning, entrepreneurship and innovation

An entrepreneur conducts a pilot test of a service in one suburb before expanding nationally. What is the main benefit of this approach?

  1. It eliminates the need for a business plan
  2. It allows assumptions to be validated on a small scale before major commitment Correct answer.
  3. It removes all financial risk from the venture
  4. It guarantees national demand for the service

Explanation

Piloting lets a venture test demand, pricing and operations with limited exposure, so assumptions can be refined before large investment. It reduces but cannot remove risk, and it does not guarantee national demand.