MGT Chapter 6 Multiple Choice & T/F

An evaluation of the worth of a small business based on book value less depreciation of building, equipment, etc. is ______________________ method. a. Discounted cash flow b. Asset valuation c. Comparable sales d. Industry heuristic

asset valuation

Which of the following is not usually a way of buying a small business? a. Buy-in b. Buy-out c. Take-over d. Auction

auction

In the process of due diligence, a. A detailed business plan is written b. Capital is obtained for financing the purchase c. Extensive investigation is undertaken to investigate every aspect of the business. d. All three are part of due diligence.

extensive investigation is undertaken to investigate every aspect of the business

Sellers of business are legally required to point out impairments or deficiencies in the United States.

f

The ratio that specifically looks at long term obligations of the owners is a. Pre-tax return on assets b. Net income to equity c. Net inform to (equity + debt) d. Income capitalization

net inform (equity + debt)

A(n) __________________________ is an organization that provides financial, technical and managerial assistance to small businesses a. Small Business Association b. SCORE c. Business incubator d. The United States government

business incubator

ESOPs are sometimes used for employee ________________ a. Buy-ins b. Buy-outs c. Take-overs d. Auctions

buy-outs

The different advantages that a partner may bring into a start-up business includes all of the following EXCEPT: a. Different talents and expertise than the founder b. Different vision and goals than the founder c. Assets such as money or equipment d. Special services such as legal or accounting

different vision and goals than the founder

An evaluation of the worth of a small business based on future cash inflows and outflows is ______________________ method. a. Discounted cash flow b. Asset valuation c. Comparable sales d. Industry heuristic

discounted cash flow

Advantages to buying an already existing business include established customers, obsolete faculties and existing business practices.

f

An advantage of franchises is that the legal agreements have over time progressed to the point that the franchisee is never at a disadvantage to the franchiser.

f

Being a business spun-off from your employer means you'll have trouble finding clients other than your employer.

f

Home-based businesses are a new idea to save entrepreneurs money.

f

Industry heuristics are generally not too accurate and should be used only to tell if you are in the ballpark.

f

Industry heuristics are rules of thumb common to all business and used to estimate value.

f

Professional managers may be hired from the outside to assist in succession issues for family businesses.

t

In a franchise, a franchiser pays a fee to the franchisee in return for a proven business model.

f

Using a business incubator is not the best idea for most start-ups as they tend to be expensive.

f

Your opening offer should be at your point of indifference.

f

Why is building trust so important to start-up businesses? a. It encourages suppliers to do business with you b. It encourages employees to work for you c. It encourages customers to do business with you d. All of the above

all of the above

To increase survival of a start-up a. Begin in a business incubator b. Have experience in managing small firms c. Get help from the Small Business Association or similar d. All of the above improve success rates.

all of the above improve success rates

Which type of experience increases the likelihood of a successful start-up? a. Experience managing small firms b. Experience in the industry c. Experience starting up new businesses d. All three will increase the likelihood of success

all three will increase the likelihood of success

One of the main advantages of franchising is a. A proven successful business model b. Freedom and flexibility c. Guaranteed sales d. Trained and experienced employees

a proven successful business model

An evaluation of the worth of a small business based comparing earnings multiples is ______________________ method. a. Discounted cash flow b. Asset valuation c. Comparable sales d. Industry heuristic

comparable sales

Start-ups are always well planned, deliberate paths to small business ownership.

f

There are several very accurate, easy to use methods of determining the value of a business.

f

Disadvantages of a start-up include a. Facilities and equipment might be obsolete b. You have less control than other entry methods c. It's harder to get financing d. There may be a bad reputation that's tough to live down.

it's harder to get financing

_______________ is when two or more entities work together for a single goal. a. Sub-contracting b. Partnering c. Synergy d. Franchising

partnering

What's the first thing you must do when you find what seems to be a suitable business to buy? a. Write a business plan b. Perform due diligence c. Hire a professional manager d. Contact a banker or other source for financing

perform due diligence

Earnings before tax divided by asset value a. Pre-tax return on assets b. Net income to equity c. Net inform to (equity + debt) d. Income capitalization

pre-tax return on assets

Which is the most risky path into business? a. Inheriting b. Starting up c. Franchising d. Buying

starting up

Good ways to find businesses for sale include talking to brokers, networking, checking ads and talking to your employer.

t

Having more than one founder in a business can create synergy.

t

Modified book value takes in all assets less depreciation plus a value for intangibles such as good will, patents and the like.

t

One potential problem with a buy-in is that key employees will leave the firm.

t

Regardless of how successful a small business becomes, there comes a point when it is so large that the business starts to decline or you are forced to hire a professional manager.

t

Takeovers are hostile and against the will of the management and owners.

t

The vast majority of start-ups are "me-too" businesses.

t

When an employee decides to work for a start-up firm, he takes a risk that wages may be late or even missed.

t

Which of the following financial statements is generally not required in performing due diligence? a. The depreciation schedule b. The balance sheet c. The income statement d. The statement of cash flows

the depreciation schedule

A start-up has a good opportunity to have state-of-the-art technology.

t

Disadvantages of start-ups include no initial name recognition, difficulty in obtaining financing and lack of experienced workers.

t

During due diligence you are trying to find out any wrongdoing in which the current owners may be involved and opportunities where you can make improvements.

t

During due diligence, owners, customers, and suppliers should be interviewed.

t

Which is more likely to increase a start-up firm's success rate? a. A "me-too" product with a proven demand b. Something innovative that's never been done before c. Neither are likely to increase the firm's success rate d. Both are equally likely to increase the firm's success rate

a "me-too" product with a proven demand

In the United States, who is responsible for determining the value of the business? a. The buyer b. The seller c. The buyer and seller jointly d. It depends on the situation

the buyer

In a key resource acquisition, which of the following are usually purchased? a. Tangible assets b. Intangible assets c. Both tangible and intangible assets d. Both tangible and intangible assets less cash, receivables and short time liabilities

Both tangible and intangible assets less cah

Which of the following questions do you attempt to answer in examining the balance sheet? a. Is income overstated? b. Are taxes paid on time? c. Are sales overstated? d. Are liabilities understated?

are liabilities understated

Industry heuristic method of valuation: a. Is used when all other methods are unavailable b. Is remarkably accurate c. Is a "down and dirty" way of estimating preliminary values d. Is only available for certain industries.

is remarkably accurate

Another word for beginning a business "from scratch" is a. Start-up b. Buy-in c. Buy-out d. Franchise

start-up

Which is NOT generally a good way to find a business for sale? a. Through a broker b. Through networking c. Through banks d. Through your employer

through banks

Besides succession plans, a family business owner may also have to consider: a. The ethical implications of passing down a business b. The possibility of hiring professional management to handle tasks family members cannot or do not want to do. c. Whether it is better for all parties concerned to close his business d. The legal issues involved should he sell the business rather than leave it to a family member.

the possibility of hiring professional management to handle tasks family members cannot or do not want to

A good way to keep costs at a minimum when starting a business is _________________________ a. To start a home based business b. To begin in a business incubator c. To sub-contract business from an existing firm d. To choose a business that produces high margins.

to start a home based business

The advantages of buying a business include all the following EXCEPT: a. Established customers b. Up-to-date technology c. Business procedures in place d. Less cash outlay than a start-up

up-to-date technology

When is a take-over possible? a. When the business has freely transferable stock b. When the employees have an ESOP c. When a company is in bankruptcy d. When a small business owner dies without a succession plan

when the business has freely transferable

Which of the following is NOT an advantage of a start-up? a. You begin with a clean slate b. You have experienced workers c. You have the most up-to-date technologies d. You can deliberate keep it small.

you have experienced workers

Your point of indifference when buying a business is when: a. You really don't care if you make a deal or not b. You really don't know if you want to be a small business owner c. You really don't care which of two (or more) businesses you buy d. You really don't care how you finance the business.

your really