Class 12 Entrepreneurship: CBSE Sample Question Paper- Term II (2021-22)- 4 | Sample Papers for Class 12 Commerce PDF Download

Class - XII

General Instructions :

• The paper is divided into 3 Sections.
• Section-wise overall choice is given to the students.
• Section A (2 markers) has 6 questions. Attempt any 4 out of 6.
• Section B (3 markers) has 5 questions. Attempt any 4 out of 5.
• Section C (5 markers) has 4 questions. Attempt any 3 out of 4.

Q.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?

Q.2. What are the features of Angel investors? Give any two.

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.

Q.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 understood 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.

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.

Q.4. Give the meaning of tagline with the help of an example.

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 toothpaste in 1978 and took an 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.

Q.5. What is a vertical merger? How is it different from a horizontal merger?

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.

Q.6. Explain the different types of sales strategies.

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.

Q.7.

(i) Identify the type of capital represented in the above diagram.

(i) Working capital

(ii) Analyze the need of the capital identified in (i).

(ii) Money needed to fund the normal, day to day operations of a business is known as the

Working Capital. It ensures you have enough cash to pay your debts and expenses as they

fall due, particularly during start-up period as very few new businesses are profitable as soon

as they open their doors. It takes time to reach break even point and start making a profit.

Working capital is required for buying raw materials, packing materials, paying rent, insurance premium, utility bills, wages and salaries and for many other services and/or materials used in the production or service. In other words, this is the money needed for the day-to-day operations of the business.

Q.8.  Paramveer Singh runs an online business for gym equipments. The annual demand for the Waist Flexers sold by him is 16,000 units. The annual holding cost of Waist Flexers per unit is ₹ 48 and the cost of placing an order is ₹ 1,500. Calculate the economic order quantity of Waist Flexers.

Formula:

Thus as: Annual demand = 16,000 units

Order cost = ₹1,500

Annual carrying cost of 1 unit = ₹ 48

Q.9. Explain any three factors affecting channels of distribution with relation to market considerations.

The factors affecting channels of distribution with relation to market considerations are as follows:
(i) Number of buyers: If the number of buyers is large then it is better to take the services of middlemen for the distribution of the goods. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.
(ii) Types of buyers: Buyers can be of two types: General Buyers and Industrial Buyers. If more buyers of the product belong to general category, then there can be more middlemen. But in case of industrial buyers there can be fewer middlemen.
(iii) Buying habits: A manufacturer should take the services of middlemen if his/her financial position does not permit him/her to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.
(iv) Buying quantity: It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity.

(v) Size of market: If the market area of the product is scattered fairly, then the producer must take the help of middlemen.

Q.10. What are the disadvantages of franchising to the franchisee? Explain any three.

Following are the disadvantages of franchising to the franchisee:
(i) Right and the only way of doing things: Entering into a franchise contract limits the degree of freedom for the franchise. As such, one gets an over-guided and over-influenced degree of control exerted by the franchisor. This results in losing the freedom to innovate to some extent.
(ii) Continuing cost implication: Over and above the original franchise fee and royalties, a percentage of revenue gets shared perpetually with the franchisor. The franchisor may also charge additional amounts towards sharing the cost for services provided such as advertising and training. As such, entering into franchise contracts with a well-known franchisor becomes a very expensive proposition because of a tendency on their part to exploit the franchisee.
(iii) Risk of franchisor getting bought: The franchisee faces serious problems and difficulties when the franchisor either fails or gets bought out by another company.
(iv) Inability to provide services: The disadvantages to the franchisee usually centre around the inability of the franchisor to provide services like advertising and location. When promises made in the franchise agreement are not kept, the franchisee may be left without any support in important areas. For example, Curtis Bean bought a dozen franchises in Checkers of America Inc., a firm that provides auto inspection services. After losing $200,000, Bean and other franchisees filed a lawsuit claiming that the franchisor had misrepresented advertising costs and had made false claims including that no experience was necessary to own a franchise.

Q.11.  Identify and explain the element of marketing mix in the situations given below:

(i) A TV manufacturing company is spending substantial amount of money to persuade the target customers to buy its T.V. sets through advertisements, personal selling and sales promotion techniques.

(i) Promotion is the element of marketing mix described in the given situation. Promotion refers to all the activities undertaken to make the product or service known to the user and trade. This can include advertising, word of mouth, press reports, incentives, commissions and awards to the trade. It can also include consumer schemes, direct marketing, contests and prizes. This will be discussed in detail in promotion strategy

(ii) Maruti Vega Ltd.’ entered into the market with coloured television and have now introduced products like audio system, air-conditioners, washing machines, etc. The company is not only offering the products but also handling complaints and offering after-sales services.

(ii) Product is the element of marketing mix described in the given situation. Product refers to the item actually being sold. The product must deliver a minimum level of performances, otherwise even the best work on the other elements of the marketing mix won't do any good. The product will typically look into the factors such as what does the customer want from the product/service, what needs does it satisfy. What features does it have to meet these needs, how and where will the customer use it, etc.

(iii) A tea manufacturing company has put labels on its packets stating the variety of tea it is selling. Currently it has three varieties—red, green and black. The tea of the company comes from a garden in Assam which is 100 years old. So the price of the tea is high but recently in order to stay in the market it has lowered down its prices by 20%. The company sells its tea in different markets of the world. Next year the company is thinking of selling its tea in the market of a nation having a very high population. The top management hasn’t yet decided the type of channel it should choose.

(iii) Price is the element of marketing mix described in the given situation. Price refers to the value that is put on a product. It depends on cost of production, segment targeted, ability of the market to pay, supply - demand and a host of other direct and indirect factors. There can be several types of pricing strategies, each tied in with an overall business plan. Pricing can also be used as a demarcation, to differentiate and enhance the image of a product.

Q.12. “An entrepreneur can raise the required capital in the primary market.” Explain the various methods of raising the funds in the primary market by an entrepreneur.

An entrepreneur can raise the required capital in the primary market by the following methods:
(i) Public issue/going public: 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: Stock options or offering shares to the employees has gained much popularity in many countries of the world. This method enables employees to become shareholders and share the profits of the company leading to higher efficiency, low labour turnover, better industrial locations, low floatation cost, wider/higher generation of funds.

Q.13. Bhushan and Vinay were pursuing Electrical Engineering from a prestigious engineering college. During their third year they developed a solar LED bulb which can be used indoors. The bulb had a small panel which had to be charged at a stretch for 10 hours in the sun and it would last for 200 hours of usage. The idea was risky as there was a possibility that the market might not accept such a product, but if they do so, then, there would be a revolution in the power industry as it would lead to saving of power in every household. The prototype was made but to manufacture and distribute the same, they required around ₹ 5 crores. Both Bhushan and Vinay approached some affluent individuals who were ready to invest in their business in exchange for a convertible debt. Identify and explain the type of investors and state the features of the same.

Angel investors: Business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early stage companies having 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.
Features:
(i) They are current or retired executives, business owners or high net worth individuals who have the knowledge, experience and funds.
(ii) They bear extremely high risk and expect a very high return.
(iii) They provide proactive advice, guide about industry connections and mentor start-ups in its early days.
(iv) Their objective is to create great companies by providing value creation.
(v) They have a sharp inclination to keep themselves abreast with current developments in a particular business arena.

Q.14. Read the following article from a Business Newspaper and answer:
“The largest Hamburger “Hamber” in India merged with well-known Cold drink manufacturer “Soda Pop” and renamed the brand “Ham-Pop” to impart a different identity. This will allow the companies to group together their products and get access to a bigger set of consumers.”

(i) Quoting the lines from the passage identify and explain the type of merger.

(i) Product extension mergers: A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.
Lines: ‘‘This will allow the companies to group together their products and get access to a bigger set of consumers.’’

(ii) Also explain why the growth of business is important through mergers and acquisitions

(ii) Mergers and Acquisitions (M&A) is a potential strategy for ensuring the accelerated growth of a business. There are various reasons that firms may choose to grow through M&A instead of expanding internally. The growth process is accelerated by acquiring a target in a line of business in which the bidding company wants to enlarge when compared with internal expansion, because the company already exists in place, with its own production capacity, distribution network and clientele. This saves a lot of time and investment for the growing company. Above all, growing through M&A may usually turn out to be less expensive compared with internal expansion, particularly when the replacement cost of assets is higher than the market value of target assets.

Q.15. What is cost plus pricing method and enlist its advantages and disadvantages?

Cost-plus pricing: The most common technique is cost-plus pricing, where 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. Estimates of the costs associated with manufacturing tasks are made for many reasons. For example, to justify planned capital expenditure, to determine likely production costs for new or modified products and to focus attention on areas of high cost.
Advantages of cost-plus pricing:
(i) Biggest advantage of this is that company knows exactly the amount of expenditure that has incurred on making a product and therefore they can add profit margin accordingly which helps in achieving the desired revenue for a firm. So, for example if a company has incurred expenses of ₹1,000 and they want to earn profit margin of 10 % than the company will sell the product at ₹ 1,100.
(ii) It is the simplest method to decide the price for a product because one has just to add up all the cost and then add profit which you want to earn which will give the price for a product.
(iii) Since the company is using its own data for deciding cost which makes it easier for a company to evaluate the reasons for escalations in expenses, can take corrective action immediately.

Disadvantages of cost-plus pricing:
(i) This method does not take into account the future demand for a product which should be the base before deciding on the price of a product and therefore a serious limitation of this method.

(ii) It also does not take into account the competitors’ actions and their effect on pricing of the product, because in today's competitive world if one solely depends on cost plus pricing it can lead to failure of company’s product in the market.

(iii) It can result in the company overestimating the price of a product because this method includes sunk cost and ignores opportunity cost also while calculating cost there is an element of personal bias while deciding the profit margin which is to be added to a product.