Chapter 6 (missing #12)

29. Tavanna brought with her a franchise business packet. She likes the idea but is unsure what might be its disadvantage? A. It is probably expensive and not profitable. B. You give up control of marketing and operations. C. You compete with the franchise company itself. D. You receive no training and

B. you give up control of marketing and operations

7. A(n) _____ credit is a credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again. A. revolving B. installment C. social D. nonrevolving credit

A. revolving

13. In which way will working with a partner reduce the risk of a start-up? A. Banks prefer partnered start-ups. B. Federal government provides subsidies to partnering situations. C. Partners may provide capital, equipment, or advice. D. Partners eliminate the need to hire other employees.

C. partners may provide capital, equipment, or advice

6. _____ refers to something the business owns that has economic value or is expected to have economic value in the future. A. Asset B. Revolving credit C. Cash flow D. Synergy

A. asset

9. A _____ is an organization that provides financial, technical, and managerial help to start-up businesses. A. business incubator B. trade association C. venture capital firm D. consultancy

A. business incubator

28. If Tavanna were to buy an existing business, which of the following disadvantages should you point out? A. Difficulty in determining the worth of the business. B. Possibility of established customers leaving due to change. C. Difficulty in changing existing business processes. D. Buying a business being more expensive than starting one.

A. difficulty in determing the worth of the business

18. _____ analysis is based on the concept that the longer you have to wait to receive money, the less valuable it is right now. A. Discounted cash flow B. Replacement value cash flow C. Free cash flow D. Book value cash flow

A. discounted cash flow

2. A legal agreement that allows a business to be operated using the name and business procedures of another firm is referred to as a A. franchise. B. license. C. turnkey. D. consignment.

A. franchise

10. In _____, executive volunteers contribute their time and energy in assisting start-up and struggling small businesses as a public service. A. mentoring programs B. trade associations C. business incubators D. franchising

A. mentoring programs

23. Identify the statement that is not essential for an agreement to constitute a franchise. A. The agreement does not require the franchisee to pay a fee for the right to enter into the business. B. The agreement grants the franchisee use of a brand name, trademark, service mark, logo, or other commercial symbol which designates the franchisee as an affiliate of the franchisor. C. The agreement provides that the franchisee may engage in business using a marketing plan or system provided by the franchisor or proposed by the franchisee. D. The agreement provides the franchisee with a legal right to engage in the business of offering, selling, or distributing goods or services.

A. the agreement does not require the franchisee to pay a fee for the right to enter into the business

11. When a small business start-up secures outside investment, one thing it accomplishes is that A. the business is critically examined by outsiders. B. it brings the synergy from multiple founders. C. the business produces a product or service for which there is a proven demand. D. the founders take part in the mentoring program.

A. the business is critically examined by outsiders

1. Which of the following is NOT a path to full-time business ownership? A. Franchising B. Stand retailing C. Starting a new business D. Buying an existing business

B. Stand retailing

26. Which of the following would you offer Tavanna as an advantage for starting a new business? A. Initial name recognition B. Clean slate C. "Legacy" locations, buildings, and equipment D. Accessibility to experienced managers and workers

B. clean slate

20. All of the following are major problems with using book value EXCEPT A. the original cost of an asset might bear no relation to its current value. B. depreciation is an arbitrary, but nonsystematic, method of transferring asset value to expense. C. internally developed assets, such as patents, trademarks, and trade secrets do not have book value. D. Depreciation makes no attempt to measure actual loss of value of an asset.

B. depreciation is an arbitrary but nonsystematic, method of transferring asset value to expense

17. Financial statements, in performing due diligence, should include all of the following EXCEPT a(n) A. balance sheet. B. mission statement analysis. C. income statement. D. statement of cash flows.

B. mission statement analysis

12. The single greatest hurdle to a successful start-up is A. obtaining and maintaining mentoring relationships. B. obtaining and maintaining sufficient cash. C. hiring and retaining qualified employees. D. procuring enough inventory for sale.

B. obtaining and maintaining mentoring relationships

14. Which of the following is an advantage of buying an existing business? A. It is easy to find an appropriate existing business for sale given the technology today. B. Purchasing a business often requires less cash outlay than for creating a start-up. C. Existing managers and employees embrace change due to continuing operations that provide job security. D. New technology needs are eliminated.

B. purchasing a business often requires less cash outlay than for creating a start-up

4. All of the following are advantages of a start-up EXCEPT A. the use of the most up-to-date technologies. B. the access to revolving credit line. C. it can be kept small deliberately to limit the magnitude of possible losses. D. it has a clean slate.

B. the access to revolving credit line

5. Which of the following is a disadvantage of a start-up? A. It begins with a clean slate B. Absence of "legacy" locations, buildings, and equipment C. Absence of initial name recognition D. Providing new products or services

C. absence of intial name recognition

25. Given that Tavanna has no inheritance possibility, all of the following are other options you could offer her for full-time business EXCEPT A. buying a business. B. franchising. C. consignment business. D. starting a new business.

C. consignment business

3. Purchases of existing businesses may occur through _____ in which the business is bought over a period of time with money earned from the business. A. turnkey B. cash purchases C. earn-outs D. leveraged buyouts

C. earn-outs

24. To avoid having the diversity of values, goals, and motivators from becoming the source of such intrafamily strife, you and the other family business members should respect one another's differences by all of the following ways EXCEPT A. being certain that all family members know and accept that they are not forced to enter the management of the business if they don't want to. B. providing each member of the family business with the opportunity to obtain education and experience outside the business. C. allowing each family member who does wish to enter the business to find out and do those functions and activities that he or she does best. D. assuming that the leadership of the business must come from within the family.

D. assuming that the leadership of the business must come from within the familt

16. Identify the statement that is not a part of the steps which make up the process of due diligence. A. Conducting extensive interviews with the sellers of the business. B. Making a personal examination of the site (or sites) of the business. C. Interviewing customers and suppliers of the business. D. Developing a brief business plan for the acquisition.

D. developing a brief business plan for the acquisition

15. Which of the following is a disadvantage of purchasing an existing business? A. Established customers leaving due to change. B. Existing business processes being difficult to change. C. Purchasing a business being significantly more expensive than a start-up. D. Existing managers and employees resisting change.

D. existing managers and employees resisting change

8. The specific concept that leads to a start-up business usually comes from the _____ of the person starting the business. A. credentials B. interests C. education D. experience

D. experience

22. _____ are rules of thumb that are commonly used to estimate firm value in relation to some easily observable characteristic of the business. A. Synergies B. Spin-offs C. Book values D. Heuristics

D. heuristics

27. Based on what you have learned from this class, which of the following should Tavanna NOT do to increase her chance of start-up success? A. Getting a mentor B. Securing outside investment C. Building trust in her "story" D. Starting her business without any other founders to avoid conflict

D. starting her business without any outher founders to avoid conflict

19. Which of the following statements about asset valuation methods is false? A. Estimates do not consider the value of an ongoing firm over the value of its identifiable assets. B. They are based on the assumption that a business is worth the value of its assets minus the value of any liabilities. C. It is very difficult and time consuming to separately identify and estimate the values of all the assets of a business. D. The application of asset valuation methods to business valuation is similar to having an annuity.

D. the application of asset valuation methods to business valuation is similar to having an annuity

21. The ratio of the value of a firm to its annual earnings is called A. un-appropriated profit. B. accumulated earnings. C. retained earnings. D. the earnings multiple.

D. the earnings multiple