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Entrepreneurship Skills Question Paper
Entrepreneurship Skills
Course:Diploma In Leadership And Management
Institution: Strathmore University question papers
Exam Year:2011
1
STRATHMORE UNIVERSITY
SCHOOL OF MANAGEMENT AND COMMERCE
DIPLOMA IN LEADERSHIP AND MANAGEMNT
END OF SEMESTER EXAMINATION
DLM 2201: ENTREPRENEURSHIP SKILLS
DATE: 15th April, 2011 TIME: 2 Hours
INSTRUCTIONS: ANSWER QUESTION ONE AND ANY OTHER TWO
QUESTIONS.
QUESTION ONE (30 marks)
A QUESTION OF INCORPORATION
The Mwania family opened its first motel in 1992. Initially business was slow. It took eleven
months to break even and three years for the Mwanias to feel that the operation was going to
be a success. They stuck with it, and by 1997 they were able to increase the size of the motel
from 28 to 50 rooms.
They expanded again in 1999 and this time to 100 rooms. In each case the occupancy rate
was so high that the Mwanias had to turn people away during the months of April to
September. By industry standards, their business was one of the most successful motels in the
country.
As they entered year 2000, Mwania and Zipporah decided that rather than expanding, they
would be better off buying another motel, perhaps in a nearby locality. They chose to hire
someone to run their current operation and spend most of their time at the new motel until
they had it running properly.
In year 2002 they made their purchase. Like their first motel, the second one was an
overwhelming success within a few years. From then on they bought a number of new
motels.
By year 2007, they had seven motels with an average of 100 rooms per unit.
During all this time the Mwanias kept their own financial records, bringing in a certified
public accountant once a year to close the books and prepare their tax returns. Last week the
new accountant asked them for how long they intended to keep the seven motels. They told
him that they enjoyed the operation and hoped to keep at it for another ten years, when they
planned to sell out and retire.
Mwania admitted that trying to keep all the motels going at the same time was difficult but
noted that he had some excellent mangers working for him. The accountant asked him
whether he would consider incorporating. “If you incorporate” he said, you could sell stock
and use the money to buy more motels. Additionally, you could keep some of the stock for
yourself so you could maintain control of the operation, sell some for expansion purposes,
and sell the rest to raise some money you can put aside in a savings account for some
conservative investment. That way, if things go bad, you still will have a nest egg built up.”
2
The accountant also explained to Mwania and Zipporah that as a partnership they are
currently responsible for all business debts. With a company they would have limited
liability: that is, if the company failed, the creditors would not sue them for their personal
assets.
In this way their assets would be protected, so the money Mwania would get from selling the
stocks would be safely tucked away. The Mwanias admitted that they had never really
considered another type of business organization. They always assumed that a partnership
was the best for them. Now they are willing o to examine the benefits of a company and they
will go ahead and incorporate their business if this approach promises them greater
advantages.
Required
a) What are the advantages and disadvantages of a partnership? (10 marks)
b) Contrast the advantages and disadvantages of a partnership with those of a
Corporation (10 marks)
c) Provide your opinion on whether the Mwanias should incorporate (10 marks)
QUESTION TWO (15 marks)
a) Discuss five different purposes for which entrepreneurs need to develop business
plans (10 marks)
b) Describe the five main reasons that have led to such a strong desire to develop
corporate entrepreneurs in recent years (5 marks)
QUESTION THREE (15 marks)
a) In your own words, what is meant by the term “ethics” for the entrepreneur
(3 marks)
b) What are the four specific areas of risk that entrepreneurs face? Describe each risk
(8 marks)
c) Discuss any four legal considerations that entrepreneurs need to take to account in
making the decision to do business in Kenya. (4 marks)
QUESTION FOUR (15 marks)
a) Assume that your father has a highly successful business, and he would like
succession into the next generation to be smooth and free of any conflict. Advise him
how he should go about preparing for succession. (10 marks)
b) What is the difference between debt financing and equity financing? What are the
benefits and drawback of each? (5 marks)
QUESTION FIVE (15 marks)
a) Assume you have started a new retail business and you want to create a website to
advertise and provide information about it. What are the attributes of a good web site?
(5 marks)
b) One of the exit strategies for the entrepreneur is for the business venture to go public.
What are the advantages and disadvantages of going public (10 marks)
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