Model paper

Entrepreneurship Business Basics

(You will be asked to write five questions out of Seven or eight)
Time: 03 hours
Question Number 01
i. Discuss why the studies in entrepreneurship have been given high prominence in many
countries at present.
ii. Explain five important entrepreneurial characteristics citing examples from organizations
familiar to you.
(20 Marks)
Question Number 02
You have been given the following information on a project.
It has a five year life time
The initial investment of the project will be Rs. 25 million, and the investment will be
depreciated by Rs. 3 million annually during this period.
The revenues are expected to be Rs. 20 million next year and to grow 10% a year after
that for the remaining four years.
Cost of goods sold, excluding depreciation, is expected to be 50% of revenues.
Ignore taxes

i. Estimate the accounting rate of return for the project.
ii. If the firm faced a cost of capital of 12%, should it take on this project?

Question Number 03
Suppose the following two independent investment opportunities are available to Greenplain Ltd.
The appropriate discount rate is 10 per cent.

Year Project A Project B
0 -500000 -2000000
1 300000 300000
2 700000 1800000
3 600000 1700000

Compute the profitability index for each of the two projects. Which project(s) should
Greenplain accept, based on the profitability index rule?

Question Number 04
The Best Manufacturing Company is considering a new three year expansion project that
requires an initial investment in fixed assets of Rs. 2.7 mn and an initial net working capital of
Rs. 300,000. The fixed asset will be depreciated equally over the life of three years and the
market value of this asset will be Rs. 210,000 at the end of the project. The project is estimated
to generate Rs. 2,400,000 in annual sales with costs of Rs. 960,000. The tax rate is 35%.
Calculate the initial cash flow, annual operating cash flow and the terminal cash flow.
Question Number 05
i. What are the different sources of financing for a new venture? Explain advantages and
disadvantages of each source.
ii. Joel Fast Food is a small food service company incorporated in 2007 in Anuradhapura that
specializes in providing high-quality fast food via company-owned portable carts in high-
density urban office locations. The business is operated under the name Joels Redhots.
Joel plans to approve borrowing Rs.1 million from commercial bank to expand marketing
and distribution of its current six-cart operation in other cities close to Anuradhapura.
Explain the possible positive and negative impacts of this change from finance and
marketing perspectives.
(20 Marks)
Question Number 06
i. Explain with examples what are the operations challenges faced by an entrepreneurial firm
in a modern environment.
ii. Explain why all entrepreneurs should have knowledge in operations management.
(20 Marks)

Question Number 07
i. Explain the role of entrepreneurial marketer in a selected industry.
ii. Explain the areas of business law need to be aware by an entrepreneur.
iii. Discuss the issues pertaining in the patenting process in Sri Lanka.
iv. What are the taxation implications to be addressed by an newly start up business?