CBSE Class 12 Entrepreneurship Question Paper 2025 Solved Code 98

SECTION A

1. 'The business of partnership firm can be carried on by all the partners or any one of them acting for all.' This statement indicates which of the following characteristic of partnership ? [1 Mark]
(A) Agreement
(B) Implied authority
(C) Mutual agency
(D) Utmost good faith

Answer: (C) Mutual agency

Teacher's Note:
a) Mutual agency means each partner is both an agent and a principal for the firm.
b) Remember this feature explains unlimited liability of partners.

2. Shivam is manufacturing hair straightening flat irons and supplying them to various beauty salons across the city. Over the last few months he observed that the sale of flat irons has decreased drastically. He tried to find out the reason. He found that the hair experts have started recommending ceramic irons which are now being sold by competitors in the market. So, he also started manufacturing ceramic irons based on new technology with added features like curling, crimping, etc.
Identify the source of idea field used by Shivam : [1 Mark]
(A) Trading Related ideas
(B) Existing Products or Services-Based ideas
(C) Service Sector ideas
(D) Market Driven or Demand Driven ideas

Answer: (B) Existing Products or Services-Based ideas

Teacher's Note:
a) Shivam improved an already existing product by adding new features.
b) Do not confuse this with market driven ideas which start from a felt customer need.

3. In this method of pricing, goods are sold at higher prices so that fewer sales are needed to break even. It also helps the company in recovering the research and development costs which are associated with the development of a new product.
This method of pricing is : [1 Mark]
(A) Penetrating pricing
(B) Cost-plus pricing
(C) Variable pricing
(D) Creaming pricing

Answer: (D) Creaming pricing

Teacher's Note:
a) Creaming or skimming pricing sets high initial prices to recover R&D costs quickly.
b) It is the opposite strategy of penetration pricing which sets low prices to gain market share.

4. Look at the given picture and state what it represents out of the following : [1 Mark]
(A) Logo
(B) Brand
(C) Brand name
(D) Tagline

[Figure: A blue filled circle with a small white dot and a vertical line below it, resembling a keyhole shape, with the text "State Bank of India" written below the image.]

Answer: (A) Logo

Teacher's Note:
a) A logo is a graphic symbol used to identify a brand visually.
b) A brand name is the word part, while logo is only the visual mark.

For Visually Impaired Candidates (in lieu of Q. 4)

Which of the following is not included in 'below-the-line' method of promotion ? [1 Mark]
(A) Personal selling
(B) Direct marketing
(C) Sales promotion
(D) Advertising

Answer: (D) Advertising

Teacher's Note:
a) Advertising is a mass-media, above-the-line promotion tool.
b) Below-the-line tools directly target specific customers, unlike advertising.

5. Sudershan has undergone skill development training for maintenance of electronic items, from an institute started under the 'Skill Development Mission' by the Government of India. He wants to start his own small business in his locality with Rs. 1,00,000 given by his father as capital. He himself wants to manage and control this business, employing some assistants, if required. Out of the following, suggest the form of business organisation he can adopt. [1 Mark]
(A) Public Limited Company
(B) Private Limited Company
(C) Partnership
(D) Sole Proprietorship

Answer: (D) Sole Proprietorship

Teacher's Note:
a) Small capital, single owner control and easy formation point to sole proprietorship.
b) Employing assistants does not change the ownership form.

6. A business opportunity can be described as an economic idea which can be implemented to create _____________ and earn profits. [1 Mark]
(A) customers
(B) competitors
(C) a business enterprise
(D) an economic environment

Answer: (C) a business enterprise

Teacher's Note:
a) A business opportunity is realised only when it is converted into an actual enterprise.
b) Remember the definition word-for-word for one-mark fill-in-the-blank questions.

7. Match the given components of a Business Plan in Column I and their meaning in Column II. Choose the correct option from the options given below : [1 Mark]
Column I (Business Plan): (1) Production Plan | (2) Operational Plan | (3) Organizational Plan | (4) Marketing Plan
Column II (Meaning): (i) describes the proposed venture's form of ownership | (ii) transformation of raw material into finished product | (iii) organises movement of material, performance of machines and operations of labour | (iv) guidelines regarding marketing objectives, strategies and activities
(A) (1)-(iv), (2)-(i), (3)-(iii), (4)-(ii)
(B) (1)-(ii), (2)-(iii), (3)-(i), (4)-(iv)
(C) (1)-(i), (2)-(iv), (3)-(ii), (4)-(iii)
(D) (1)-(iii), (2)-(ii), (3)-(iv), (4)-(i)

Answer: (B) (1)-(ii), (2)-(iii), (3)-(i), (4)-(iv)

Teacher's Note:
a) Production plan deals with converting raw material into finished goods.
b) Organizational plan always describes the ownership form of the venture.

8. 'Payal Ltd.' is the manufacturer of high end costly water purifiers. Their water purifiers are unique and different from the purifiers available in the market. For its marketing they appointed salespersons who will go door-to-door and explain the unique features of their product.
From the following, identify the channel of distribution adopted by 'Payal Ltd.' : [1 Mark]
(A) Three-Level Channel
(B) Two-Level Channel
(C) One-Level Channel
(D) Zero-Level Channel

Answer: (D) Zero-Level Channel

Teacher's Note:
a) A zero-level channel means the manufacturer sells directly to the consumer without any intermediary.
b) Door-to-door salespersons employed directly by the manufacturer are part of this direct channel.

9. Patents _________________________________ . [1 Mark]
(i) grant an inventor the right to exclude others from making, using, selling, offering to sell, and importing an invention for a limited period of time, in exchange for the public disclosure of the invention.
(ii) give the creator of the original work exclusive rights, usually for a limited period.
(iii) are a recognizable sign, design or expression which distinguishes products or services of a particular trade from the similar products or services of other traders.
(iv) protect the visual design of objects that are not purely utilitarian. It can be a two or three dimensional pattern used to produce a product.
Choose the correct option from the following :
(A) (i) only
(B) (i) and (ii)
(C) (iii) and (iv)
(D) (ii) and (iii)

Answer: (A) (i) only

Teacher's Note:
a) Statement (ii) describes copyright, (iii) describes trademark, and (iv) describes industrial design.
b) Only statement (i) correctly defines a patent.

10. A brand or a part of a brand that is given legal protection against its use by other firms is called ___________. [1 Mark]
(A) Brand name
(B) Brand mark
(C) Trademark
(D) Logo

Answer: (C) Trademark

Teacher's Note:
a) A trademark provides legal protection to a brand or its part.
b) Brand name and brand mark are just the elements; trademark is the legal right over them.

11. 'Bharat Cars Ltd.' is the manufacturer of small cars in India and 'Swadeshi Ltd.' is the manufacturer and supplier of car parts. Both the companies decide to merge as such a merger would allow 'Bharat Cars Ltd.' to obtain better pricing on parts and have better control over the manufacturing process. 'Swadeshi Ltd.' would also be guaranteed a steady stream of business.
The type of merger is : [1 Mark]
(A) Market Extension Merger
(B) Vertical Merger
(C) Horizontal Merger
(D) Product Extension Merger

Answer: (B) Vertical Merger

Teacher's Note:
a) A vertical merger is between firms at different stages of the same production or supply chain.
b) Here a car maker merges with its parts supplier, which is a classic vertical merger.

12. This is the title or cover page that provides a brief summary of a business plan's contents : [1 Mark]
(A) Description of Venture
(B) General Introduction
(C) Production Plan
(D) Operational Plan

Answer: (B) General Introduction

Teacher's Note:
a) General Introduction is the cover/title page of the business plan.
b) It gives a quick summary before the detailed plan begins.

13. Read the following statements : Assertion (A) and Reason (R). [1 Mark]
Assertion (A) : It is not compulsory to register a partnership firm as there are no penalties for non-registration.
Reason (R) : An unregistered partnership firm can file a suit in any court against the firm or other partners for enforcement of any right arising from a contract or right conferred by the Partnership Act.
Choose the correct option from the options given below :
(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: (C) Assertion (A) is true, but Reason (R) is false.

Teacher's Note:
a) Registration is optional, so Assertion (A) is correct.
b) Actually an unregistered firm CANNOT sue the firm or other partners, so Reason (R) is false.

14. 'Return on Investment' is a critical profitability ratio. It is calculated as follows :
Return on Investment (ROI) = \( \dfrac{\text{Net Profit}}{-----} \times 100 \)
Choose the correct option from the following : [1 Mark]
(A) Equity
(B) Debt
(C) Total Capital Invested
(D) Debt + Interest on Debt

Answer: (C) Total Capital Invested

Teacher's Note:
a) ROI is calculated as Net Profit divided by Total Capital Invested, multiplied by 100.
b) It measures overall efficiency of the total capital employed in the business.

15. Which of the following is not a current liability ? [1 Mark]
(A) Outstanding rent
(B) Short-term investment
(C) Trade creditors
(D) Short-term loans

Answer: (B) Short-term investment

Teacher's Note:
a) Short-term investment is a current asset, not a liability.
b) Outstanding rent, trade creditors and short-term loans are all current liabilities.

16. Which of the following methods of floatation of new issues is used by the company, when the company directly sells its securities to a limited number of sophisticated investors and at times does not want to disclose information to the open market ? [1 Mark]
(A) Public Issue
(B) Rights Issue
(C) Private Placement
(D) Offer to the Employees

Answer: (C) Private Placement

Teacher's Note:
a) Private placement involves direct sale to a select group of investors, avoiding public disclosure.
b) It is faster and less costly than a public issue.

17. In ___________ acquisition, a public company is taken over by a private company. [1 Mark]
(A) Friendly
(B) Reverse
(C) Backflip
(D) Hostile

Answer: (B) Reverse

Teacher's Note:
a) In a reverse acquisition, a private company takes over a public company.
b) This helps the private company become publicly listed without an IPO.

18. 'Techworks' is a company selling electronic products. To keep track of inventory and manage sales efficiency each and every item in the inventory is assigned a unique code which signifies certain aspects of the item. Its unique code is a combination of alpha and numeric and is used not only for data collection, but also for further manipulation for deriving meaningful statistics and decision-making. However, over time, due to advancement in technology, certain items may not be used and their demand drops off. 'Techworks' faces a challenge of dealing with these products, particularly with technology evolving quickly.
Some of the items that make up the inventory of 'Techworks' as discussed above are _____________ and _____________. [1 Mark]
(A) Stock Keeping Unit (SKU) code, Motley Crowd
(B) Motley Crowd, Demand not uniform or not predictable
(C) Obsolescence, Shelf life
(D) Stock Keeping Unit (SKU) code, Obsolescence

Answer: (D) Stock Keeping Unit (SKU) code, Obsolescence

Teacher's Note:
a) SKU code is the unique alpha-numeric code used to track each inventory item.
b) Obsolescence refers to items losing demand due to fast changing technology.

SECTION B

19. (a) What is a 'Business Opportunity'. List any two elements of Business Opportunity. [2 Marks]

Answer:
1. A business opportunity is an economic idea which can be implemented to create a business enterprise and earn profits.
2. Two elements: assured market scope, and an attractive and acceptable rate of return on investment.

Teacher's Note:
a) Memorise the exact definition as it is asked frequently.
b) Other elements include practicability of the idea and potential for future growth.

OR

(b) Various factors are involved in sensing opportunities. 'Ability to perceive and preserve basic ideas' is one of them. Identify and state any four sources that lead to the emergence of basic ideas. [2 Marks]

Answer:
1. Problems: an idea leads to a solution to resolve an existing problem.
2. Change: changes in social, legal or technological aspects lead to new opportunities.
3. Inventions: new products or services lead to new business opportunities.
4. Competition: competition leads to emergence of new and better ideas.

Teacher's Note:
a) Innovation is also an acceptable fifth source if needed.
b) Give short one-line explanation for each source to score full marks.

20. Manorama opened a retail outlet in Bengaluru selling readymade fashionable garments like t-shirts, skirts, kurtis, etc. for girls. Her decision was based on recent trends in clothing of young girls.
Since fashion changes very fast in the garments business, Manorama not only wanted to understand the business environment but also wanted to adapt it to succeed in the long run. So, she monitored fashion trends through social media and introduced sustainable clothing.
A keen watch on the trends in the environment had sensitized Manorama to the changing needs of customers.
By doing this, Manorama is concentrating on one of the points of importance of environment.
(a) Identify the point of importance of environment discussed above.
(b) Explain with the help of one more point how sensitivity to environmental factors is crucial for an entrepreneur. [2 Marks]

Answer:
1. The point discussed is: sensitisation of entrepreneurs to cope up with rapid changes.
2. Another point: identification of opportunities to get first mover advantage - by keeping in touch with external changes, an enterprise can find and capitalise on opportunities earliest.

Teacher's Note:
a) Always name the heading first before explaining the point.
b) Other valid points are formulation of strategies, tapping useful resources and image building.

21. (a) Deepa, Guddi and Vani are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Deepa wants to transfer half of her share in favour of her son Deepak without the consent of Guddi and Vani. Can Deepa transfer her share ? Give reason in support of your answer. State the feature of partnership highlighted in the above case. [2 Marks]

Answer:
1. No, Deepa cannot transfer her share without the consent of Guddi and Vani.
2. As per the Partnership Act, no partner can sell or transfer his/her share to anybody else without the consent of all other partners. This highlights the feature 'Restriction on transfer of share'.

Teacher's Note:
a) Name the feature clearly, this carries separate marks.
b) This restriction protects the mutual trust among partners.

OR

(b) Aruna, passionate about baking, opened a bakery shop. She borrowed Rs. 50,000 from her father and took a loan of Rs. 1,00,000 from a bank to start the business. To attract customers, she set the prices too low. Later on she noticed that the revenue earned by her was not enough to even cover the costs. When the loan amount became due, she was not in a position to pay. The bank recovered the loan from Aruna's personal assets, including her savings and property.
Can Aruna's personal property be called upon to pay her business debts ? Give reason in support of your answer. State the feature of sole proprietorship highlighted in the above case. [2 Marks]

Answer:
1. Yes, Aruna's personal property can be called upon to pay her business debts.
2. A sole proprietor is personally responsible for all business losses, and if business assets are insufficient, personal property must be sold to pay off liabilities. This highlights the feature 'Unlimited liability'.

Teacher's Note:
a) Unlimited liability is a key disadvantage of sole proprietorship.
b) Contrast this with limited liability of a company to remember the difference.

22. After completion of his training of cutting, tailoring and embroidery from a skill development institute, Sujit wanted to start his own business. He discussed this idea with his mother who advised him to identify the new trends in this area. She also advised him to take the help of professional trend spotters for this. When Sujit contacted some of the best professional trend spotters, he found that their fee was too high. So he decided to do this work himself, started reading the leading publications and visited websites related to the type of business he wanted to start. This way he was able to spot related trends.
Identify and explain the method used by Sujit to spot the trends. Also list two other ways in which trends can be spotted. [2 Marks]

Answer:
1. Method used: Read Trends - entrepreneurs regularly read leading publications, trade sites, newspapers and blogs affecting their business to gather information from a wide range of sources.
2. Two other ways: Talk trends, and Watch trends.

Teacher's Note:
a) Name the method clearly before explaining it.
b) Think trends is another acceptable alternative method.

23. Explain 'A pitch deck with oral narrative' as a format of a business plan. [2 Marks]

Answer: A pitch deck with oral narrative is a hopeful and entertaining slide show accompanied by an oral narrative. It is meant to trigger discussion and interest potential investors in reading the detailed written presentation, such as the executive summary, along with a few key graphs showing financial trends and important decision-making benchmarks.

Teacher's Note:
a) It is a short, engaging format used mainly to attract investor attention quickly.
b) Do not confuse it with the full written business plan document.

24. (a) Given below is the 'Cash Conversion Cycle'.
(i) Identify the type of business to which the above cash conversion cycle belongs.
(ii) Draw a 'cash conversion cycle' for another type of business other than that identified in (i) above. [2 Marks]

[Figure: A cyclical diagram with four circles connected by arrows in a cycle: Cash to Stock of goods to Sales to Debtors and back to Cash.]

Answer:
1. The given cash conversion cycle belongs to a Trading business.
2. Cash conversion cycle for a Manufacturing business: Cash to Raw Material Stocks to Work-in-Progress to Finished Goods to Sales to Debtors and back to Cash.

Teacher's Note:
a) A trading cycle has only one stock stage (goods), while manufacturing has three stages of stock.
b) Draw the cycle clearly with arrows showing the flow direction.

For Visually Impaired Candidates (in lieu of Q. 24(a))

(a) Calculate 'Gross Working Capital' from the following information : [2 Marks]
Cash: Rs. 20,000
Creditors: Rs. 2,00,000
Debtors: Rs. 3,50,000
Short-term loans: Rs. 75,000
Outstanding rent: Rs. 15,000
Stock: Rs. 80,000

Answer:
1. Gross Working Capital = Sum of all current assets = Cash + Debtors + Stock
2. = Rs. 20,000 + Rs. 3,50,000 + Rs. 80,000 = Rs. 4,50,000

Teacher's Note:
a) Only current assets are used; creditors, loans and outstanding rent are liabilities, not included here.
b) Gross working capital differs from net working capital, which subtracts current liabilities.

OR

(b) Give the meaning of ABC analysis technique of inventory control. [2 Marks]

Answer: In ABC analysis, a company reviews its inventory and sorts all Stock Keeping Unit (SKU) codes into three categories: "A" items (about 20% of SKUs, 80% of value, tightly controlled), "B" items (about 30% of SKUs, 15% of value, reviewed less often) and "C" items (about 50% of SKUs, 5% of value, ordered in bulk with minimal control).

Teacher's Note:
a) Remember the approximate percentage break-up of A, B and C items.
b) "A" items get the closest monitoring since they hold the highest value.

SECTION C

25. 'Chai Cart', an Indian company, was set up in 2021 near a prime office hub in Nurgaon. The company aimed to fulfil the high demand for tea among office goers. Within a few months, the demand picked up and the business started earning good profits. In response to the rising demand, the company decided to expand its operations. Expansion of its business could be based on activities or on acquisition of ownership and control of other business concerns.
'Chai Cart' expanded its present production capacity by adding more machines. Furthermore, it opened its branches in shopping malls, airports and suburban locations, allowing it to reach more customers and to increase brand visibility. They also introduced new products, including a wider range of food items, coffee and other beverages to attract more customers. In this way, the company increased its business activities and broadened its present capital structure.
(a) Identify and explain the type of expansion discussed in the above paragraph.
(b) Also explain one other type of expansion. [3 Marks]

Answer:
1. Type discussed: Internal Expansion - it results from a gradual increase in the activities of the concern, such as adding more machines, entering new production lines or expanding marketing activities on its own.
2. Other type: External Expansion - this refers to business combination where two or more concerns combine and expand their business activities together, either among competing units or units at different stages, pursuing common objectives after combination.

Teacher's Note:
a) Internal expansion is growth from within, external expansion is growth through combining with other firms.
b) Adding machines and opening branches are internal expansion examples, mergers are external expansion examples.

26. (a) 'Carefully identifying the product or service features, design, as well as the resources that will be needed' is an element in the innovation process. Explain its other three elements. [3 Marks]

Answer:
1. Resource organization: obtaining the required materials, technology, human or capital resources.
2. Implementation: applying the resources in order to accomplish the plans and deliver results.
3. Commercial application: providing value to customers, rewarding employees and satisfying stakeholders.

Teacher's Note:
a) These are the last three stages after identifying features, design and resources.
b) Commercial application is the final stage where profit and value are actually realised.

OR

(b) The process of creativity involves various steps. One of the steps is related to transition period, 'where the entrepreneur starts thinking about the idea and implementation in his subconscious mind'. Explain the next three steps followed by this. [3 Marks]

Answer:
1. Illumination: the idea re-surfaces in a realistic way, and the entrepreneur comes out with a viable plan by collecting raw materials, arranging funds and making policies for implementation.
2. Verification: also called validation or testing stage, where the idea is verified to prove that it has value; this is the most difficult phase as obstacles begin to appear.
3. This is the developing stage in which knowledge from verification is developed into practical application.

Teacher's Note:
a) Incubation is the given stage, followed by Illumination and Verification.
b) Since only two named steps follow incubation, explain both in detail to earn full marks.

27. 'Golden Ice Cream Limited' is a manufacturer and supplier of ice creams. They set the price of their various ice cream varieties based on manufacturing estimates. The company had been earning good profits over the last many years as there were no competitors in the market for their ice creams. However, during the last year, the company incurred heavy losses. On investigation they noticed that while setting the prices, they did not take into account the actions of competitors, which may have led to these losses. Additionally, the pricing method used by the company includes sunk cost and ignores opportunity costs.
(a) Identify the pricing method used by the company.
(b) Explain any two advantages of the pricing method identified in (a) above. [3 Marks]

Answer:
1. Pricing method used: Cost Plus Pricing Method.
2. Advantage one: the company knows exactly how much has been spent on making a product, so it can add a profit margin accordingly to achieve desired revenue.
3. Advantage two: it is the simplest method, as one just adds all costs and the desired profit margin to arrive at the selling price.

Teacher's Note:
a) Cost plus pricing ignores competitor actions and opportunity costs, which is its main drawback.
b) It is popular because it guarantees cost recovery and is easy to calculate.

28. (a) Explain any three product-related considerations to be used by an entrepreneur while selecting the channel of distribution. [3 Marks]

Answer:
1. Unit value of the product: costly products use short distribution channels, while less costly products use longer channels.
2. Standardised or customised product: standardised products use long channels, while customised products need direct, face-to-face sales.
3. Perishability: highly perishable products use minimum or no middlemen, while durable goods can use longer channels.

Teacher's Note:
a) Technical nature of the product is another valid consideration that can replace any of the above.
b) Always link each consideration to whether it needs a short or long channel.

OR

(b) Explain 'above-the-line' promotion strategy used by a company to promote its products. [3 Marks]

Answer:
1. Above-the-line promotions use mass media methods and focus on advertising to a large audience, including print, online, television and cinema advertising.
2. Activities include advertisements in the press, online banner advertisements, billboard advertisements and use of the company's website.
3. It is difficult to tailor such a message to a specific group since it is viewed by a mass audience with different tastes, and this strategy is also very expensive.

Teacher's Note:
a) Above-the-line targets a broad audience, unlike below-the-line which is targeted.
b) Cost and lack of personalisation are the two key drawbacks to remember.

29. 'Kwality Book Store' sells 40,000 chart papers per year. The demand is constant throughout the year. The purchase cost is Rs. 10 per chart paper. Holding cost per annum is 20% of purchase cost, ordering cost is Rs. 100 per order.
Calculate the Economic Order Quantity. [3 Marks]

Answer:
1. Formula: \( EOQ = \sqrt{\dfrac{2PD}{C}} \)
2. P (ordering cost) = Rs. 100, D (annual demand) = 40,000 units
3. C (carrying cost) = 20% of Rs. 10 = Rs. 2 per unit
4. \( EOQ = \sqrt{\dfrac{2 \times 100 \times 40000}{2}} = \sqrt{4000000} \)
5. EOQ = 2,000 chart papers

Teacher's Note:
a) Always calculate the carrying cost first before applying the EOQ formula.
b) Keep the units consistent (annual demand and annual carrying cost).

SECTION D

30. 'Bharat Ltd.' is a manufacturer of electronic items. In 2022 - 23, the company decided to enter into manufacturing Artificial Intelligence-based computers. Being highly complex and tedious, the manufacturing process of these computers needed to be thoroughly planned.
(a) Identify the component of business plan discussed in the above paragraph.
(b) State the objective of the component identified in (a) above.
(c) List five points that are needed to be described in this component of business plan, if the manufacturing is to be carried out in whole by 'Bharat Ltd.'. [5 Marks]

Answer:
1. Component discussed: Production Plan.
2. Objective: to picture ahead every step in a long series of separate operations, each step to be taken in the right place, to the right degree, and at the right time, with each operation done at maximum efficiency.
3. Point one: the physical plant layout.
4. Point two: the machinery and equipment required to perform the manufacturing operations.
5. Point three: raw materials and suppliers' names, addresses, terms and conditions.
6. Point four: cost of manufacturing.
7. Point five: any future capital equipment required.

Teacher's Note:
a) Since manufacturing is done fully in-house, the production plan must cover the entire manufacturing process.
b) Plant layout and machinery details are the most important points examiners look for.

31. (a) What is meant by 'franchising' ? Explain the main components of a franchise agreement. [5 Marks]

Answer:
1. Meaning: Franchising is an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardised operating procedures.
2. Contract Explanation: outlines the type of relationship a franchisee is entering with the franchisor.
3. Operations Manual: outlines legal guidelines the franchisee must follow in operating the business, and its content remains confidential.
4. Proprietary Statements: specify usage of the franchise name, marketing and advertising procedures, and franchisee's contribution to national advertising.
5. Ongoing Site Maintenance: specifies maintenance requirements, timeframes and necessary upgrades for the franchise location.

Teacher's Note:
a) Give the meaning first, then list and briefly explain each component separately.
b) Operations Manual and Contract Explanation are the two most commonly tested components.

OR

(b) Explain any five forms of 'Synergy'. [5 Marks]

Answer:
1. Operating Synergy: cost savings through economies of scale or increased sales and profits, leading to overall growth of the firm.
2. Financial Synergy: results from financial factors like lower taxes, higher debt capacity, or better use of idle cash; combining a loss-making firm with a profitable one can create a tax shield.

Teacher's Note:
a) Since the marking scheme lists only two forms, explain both thoroughly to earn full marks.
b) Operating synergy is about cost/sales benefits, financial synergy is about tax/finance benefits.

32. 'Good Air Ltd.' is the manufacturer of different types of electric fans like ceiling fans, table fans, exhaust fans, etc. It wanted to start its operations in the recently electrified rural areas ahead of its competitors. It invested in research and development to adopt new technology so that it could produce energy efficient fans at lower cost.
The government was stable for the last many years and was focusing on electrification of rural areas. 'Good Air Ltd.' took advantage of this and started its operations. The company complied with health and safety regulations, as well as environmental protection laws, to ensure customer safety. As its policy, the company also assures compensation to its customers in case of an injury or accident due to its fans.
Since the disposable income of the people in rural areas was low, the company offered an instalment scheme, making its products more accessible to them. Committed to sustainability, the company ensures that its production causes minimum environmental damage. For this, it focuses on reducing waste by recycling production by-products and using biodegradable packaging materials whenever possible.
Quoting lines from the above text, identify five macro environmental factors that the company took into consideration while operating its business. [5 Marks]

Answer:
1. Technological: "It invested in research and development to adopt new technology..."
2. Political: "The government was stable for the last many years..."
3. Legal: "The company complied with health and safety regulations..."
4. Economic: "Since the disposable income of the people in rural areas was low..."
5. Ecological: "The company ensures that its production causes minimum environmental damage..."

Teacher's Note:
a) Always name the factor heading and then quote the matching line from the case for full marks.
b) Macro environmental factors include Political, Economic, Social, Technological, Legal and Ecological (PESTLE).

33. 'Royal Fruit Juice Ltd.' are the manufacturers of different types of fruit juices. They do not use any artificial flavours in their products. The fixed cost of the production process is Rs. 1,76,000. Given below is information about Mango, Orange and Guava fruit juices.
Type of Juice: Mango (Per Litre) | Orange (Per Litre) | Guava (Per Litre)
Selling Price (Rs.): 150 | 135 | 100
Variable Cost (Rs.): 80 | 65 | 60
Sales Mix Percentage: 20% | 40% | 40%
From the above data, calculate the following :
(a) Total weighted average contribution margin per unit.
(b) Break-even point in units of sales mix.
(c) Break-even point (in Rs.) for each type of juice. [5 Marks]

Answer:
1. Contribution margin per litre: Mango = 150 - 80 = Rs. 70; Orange = 135 - 65 = Rs. 70; Guava = 100 - 60 = Rs. 40.
2. Weighted average contribution: Mango = \( 70 \times \dfrac{20}{100} = 14 \); Orange = \( 70 \times \dfrac{40}{100} = 28 \); Guava = \( 40 \times \dfrac{40}{100} = 16 \).
3. Total weighted average contribution margin per unit = 14 + 28 + 16 = Rs. 58.
4. Break-even point (in units) = \( \dfrac{\text{Fixed Cost}}{\text{Total Weighted Average Contribution Margin}} = \dfrac{1,76,000}{58} = 3034.48 \) litres.
5. Mango units = \( 3034.48 \times \dfrac{20}{100} = 606.90 \) litres; Orange units = \( 3034.48 \times \dfrac{40}{100} = 1213.79 \) litres; Guava units = \( 3034.48 \times \dfrac{40}{100} = 1213.79 \) litres.
6. Break-even point (in Rs.) = Break-even units \( \times \) selling price. Mango = \( 606.90 \times 150 = \) Rs. 91,033.50; Orange = \( 1213.79 \times 135 = \) Rs. 1,63,861.65; Guava = \( 1213.79 \times 100 = \) Rs. 1,21,379.

Teacher's Note:
a) Always compute contribution margin before finding the weighted average.
b) Multiply break-even units of each product by its own selling price to get the rupee break-even point.

34. (a) 'It is an equity-based investment in a growth-oriented small to medium business to enable the investor to accomplish objectives in return for minority shareholding in the business.'
This investment has to be carefully evaluated and analysed by an entrepreneur to find out the stage at which he/she requires this investment to assist in.
(i) Identify the type of capital discussed in the above lines.
(ii) Explain the three stages included in 'Early Stage Financing' if the capital identified in (i) above is required at this stage. [5 Marks]

Answer:
1. Type of capital: Venture Capital.
2. Seed Capital Finance: capital required at the pre-commercialization stage of research, where the entrepreneur convinces the investor of the idea's worth while the investor evaluates technical and economic feasibility.
3. Pre-Start up and Startup Capital: if the idea qualifies for further investment, it moves to the start-up stage; the entrepreneur presents a business plan to the VC firm and a management team is formed, with a VC representative on the board.
4. Second-Round Financing: at this stage, the idea has become a product being produced and sold; the business faces competition and needs VC assistance for expansion, modernization and diversification to attain economies of scale and stability.

Teacher's Note:
a) Venture capital is minority equity investment for growth-oriented small and medium businesses.
b) Name each stage clearly in sequence: Seed, Startup, Second-Round.

OR

(b) '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.'
(i) Identify the source to raise finance available to an entrepreneur discussed in the above lines.
(ii) State any four features of the source of raising finance discussed in (i) above. [5 Marks]

Answer:
1. Source identified: Angel Investors.
2. Feature one: most angel investors are current or retired executives, business owners or high net worth individuals who have the knowledge, expertise and funds to help start-ups match industry standards.
3. Feature two: they bear extremely high risk, are usually subject to dilution from future investment rounds, and expect very high returns on investment.
4. Feature three: apart from funds, they provide proactive advice, guidance, industry connections and mentoring in the early days.
5. Feature four: their objective is to create great companies through value creation while also helping themselves realise a high return on investment.

Teacher's Note:
a) Angel investors mainly fund start-ups and early-stage companies with high risk-high return expectations.
b) Mentoring and industry connections, not just money, are a special feature of angel investors.

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