ENT 396 Ch 4

A Subway restaurant located inside a Walmart is an example of _____ franchising. a. folded b. internalized c. cooperative d. piggyback

d. piggyback

Royalty fees typically range between _____ and _____ percent of the gross income that the franchisee receives from customers for selling the franchised products and services. a. 5; 9 b. 3; 5 c. 1; 2 d. 10; 15

a. 5; 9

In 2020, a California law known as _____ established the _____ for determining if a person is an independent contractor or an employee. a. AB5; ABC test b. AB5; 123 test c. AB7; XYZ test d. AB20; ABC test

a. AB5; ABC test

Membership in the International Franchise Association (IFA) provides which of the following benefits? a. Guidelines for self-regulation through a framework for best practices b. Free advertising in publications such as Poor Richard's Almanac c. Low-interest loans to qualifying franchisees d. All of these choices

a. Guidelines for self-regulation through a framework for best practices

Which of the following companies is credited with being the first franchisor in the United States? a. The Singer Company b. McDonald's c. H&R Block d. Nathans's Famous, Inc.

a. The Singer Company

A franchising strategy whereby a single franchisee owns more than one unit of the franchised business is typically referred to as a multiple-unit ownership strategy. a. True b. False

a. True

Coca-Cola soft drink bottlers are an example of a product and trade name franchisor. a. True b. False

a. True

In many cases, a franchisor will receive payments in the form of royalties that are based on a percentage of the franchisee's gross income. a. True b. False

a. True

Jarrod is reading a detailed statement of the franchisor's finances, experience, size, and involvement in litigation. Jarrod is reading a Franchise Disclosure Document (FDD). a. True b. False

a. True

One of the advantages of buying a franchise is that the purchaser has access to a business model with a proven track record. a. True b. False

a. True

The processing of a loan application can be completed more quickly if the franchising organization is registered with the U.S. Small Business Administration. a. True b. False

a. True

Which of the following questions is the least important when developing a franchise from an independent business? a. Who will develop the operations manual? b. Is the business replicable? c. How will growth be financed? d. What expert assistance will be needed for legal matters?

a. Who will develop the operations manual?

In a gig economy, a person is paid a. for his or her labor. b. for his or her resources. c. under the table. d. for goods sold.

a. for his or her labor.

Caron signed a contract with Devon allowing her to provide services using Devon's trademark, logo, and business model. This business is a(n) a. franchise. b. franchisor. c. franchisee. d. independent business.

a. franchise.

JKL Corporation grants another party the right to conduct business according to specified methods and terms. JKL is a a. franchisor. b. franchisee. c. franchise. d. licenser.

a. franchisor.

Independent contractors a. have the freedom to engage in multiple entrepreneurial activities. b. cannot be a full-time employee while doing freelance work on the side. c. can have their taxes withheld from their pay. d. do not have to provide their own tools.

a. have the freedom to engage in multiple entrepreneurial activities.

Kelly is interested in opening an XYZ franchise. In addition to an up-front payment of $100,000, Kelly will have to pay building costs and purchase inventory and equipment. This type of expense is called a. investment costs. b. the initial franchise fee. c. royalty payments. d. marketing fees.

a. investment costs.

Cameron has established a successful business and would like to expand. He is considering becoming a franchisor. Before taking that step, Cameron should a. make sure his business is replicable. b. have a technical writer create an operations manual. c. partner with a lender to offer franchisee financing. d. hire a master licensee to locate prospective franchisees.

a. make sure his business is replicable.

Ford automobile dealers and Chevron convenience stores are examples of companies that engage in a. product and trade name franchising. b. business format franchising. c. multibrand franchising. d. co-branding.

a. product and trade name franchising.

Carla uses her own car to deliver food to residences during hours of her own choosing through DoorDash. Carla is participating in a. the gig economy. b. the sharing economy. c. both the gig and sharing economies. d. none of these choices.

a. the gig economy.

Before signing a franchise contract, a potential franchisee should obtain the services of which of the following? a. A union representative, an attorney, and a technical writer b. An attorney, an accountant, and a banker c. A banker, an accountant, and a contract law consultant. d. An accountant, another franchisee, and a banker

b. An attorney, an accountant, and a banker

A franchisor that sells another franchise location within the market area of an existing franchisee is using a piggybacking franchising strategy. a. True b. False

b. False

As of 2008, the Federal Trade Commission's Franchise Rule prescribes that franchisors have discretion in disclosing to prospective franchisees information such as prior bankruptcies, the business experience of the principals, and litigation in which the firm is involved. a. True b. False

b. False

One of the benefits of a franchise agreement for the franchisee is that the franchisor is solely responsible for advertising the franchise. a. True b. False

b. False

Perhaps the most fundamental argument against the franchise model is that it increases the level of risk for business owners. a. True b. False

b. False

The practice of putting one franchise right next to another is referred to as piggyback franchising. a. True b. False

b. False

The unscrupulous actions by franchisors to void the contracts of franchisees in order to sell the franchise to someone else and collect an additional fee is called chewing. a. True b. False

b. False

There is no need to find out more information about a prospective franchise as the franchisor should be the primary source of information. a. True b. False

b. False

The COVID-19 pandemic had which of the following effects on the gig and sharing economies? a. The number of people involved went into decline (negative growth). b. The gig and sharing economies grew by 33%. c. The gig and sharing economies grew by 50%. d. Growth remained the same (no effect).

b. The gig and sharing economies grew by 33%.

Most franchise experts recommend that the Franchise Disclosure Document (FDD) be reviewed by a. regulators that specialize in such documents. b. an attorney and accountant. c. everyone associated with the potential startup. d. suppliers that may be used if the startup is successful.

b. an attorney and accountant.

Individuals or firms that obtain the legal right to open several franchised businesses in a given area are referred to as a. development franchisees. b. area developers. c. piggyback franchisees. d. multiple-unit owners.

b. area developers.

The franchise contract that Pamela signed with DEF Company specified that she would have an exclusive sales territory. While the contract was still in force, DEF opened a corporate-owned store within her territory. DEF is guilty of a. master licensing. b. encroachment. c. due diligence. d. churning.

b. encroachment.

Belinda signed a _____, which is a legal agreement between the franchisor and franchisee that spells out the relationship and obligations between the two parties. a. master license b. franchise contract c. requirements contract d. franchise consent draft

b. franchise contract

Annabelle has been granted the right to conduct business according to specified methods and terms of another party. Annabelle is a a. franchisor. b. franchisee. c. franchise. d. licensee.

b. franchisee.

Edward signed a contract allowing Francine to sell products using his trade name so long as the product meets Edward's quality standards. Edward is a(n) a. franchise. b. franchisor. c. franchisee. d. independent business owner.

b. franchisor.

Within the gig and sharing economies, the heated debates over independent contractor/employee status have mostly focused on a. liability issues. b. lack of fringe benefits and worker protections. c. the right of independent contractors to form unions and bargain collectively. d. none of these choices.

b. lack of fringe benefits and worker protections.

Quality Dining, Inc., operates several different restaurant franchises including Burger King and Chili's. Quality Dining has its own corporate structure and stockholders. This corporation is an example of a. master licensing. b. multibrand franchising. c. piggyback franchising. d. co-branding.

b. multibrand franchising.

The franchising strategy whereby an individual or firm is granted the legal right to own more than one unit of a franchised business is known as a. multibrand franchising. b. multiple-unit ownership. c. piggyback franchising. d. aggregate ownership.

b. multiple-unit ownership.

Sister Mary Cupcake has partnered with the management of the toll road to operate her stores in the travel plazas. This arrangement is an example of a. master licensing. b. piggyback franchising. c. area development. d. multibrand franchising.

b. piggyback franchising.

Starbucks operates outlets inside some grocery stores, such as Safeway and Kroger. This is an example of a. product and trade name franchising. b. piggyback franchising. c. multibrand franchising. d. area development.

b. piggyback franchising.

A potential franchise should be skeptical of a franchisor that a. owns more than one trade name. b. pressures him or her to sign a contract without time for proper investigation. c. is not a member of the International Franchise Association (IFA). d. is not certified by the government.

b. pressures him or her to sign a contract without time for proper investigation.

In a sharing economy, persons are paid for their a. labor. b. resources. c. expertise. d. all of these choices

b. resources.

The registry maintained by the U.S. Small Business Administration a. lists warnings about certain franchisors. b. speeds up loan processing for franchisees. c. rates franchisors according to a four-star rating. d. registers all franchisors operating in the United States.

b. speeds up loan processing for franchisees.

Stuart is interested in opening a QRS franchise. QRS requires an up-front payment of $150,000. This amount represents a. Stuart's investment costs. b. the initial franchise fee. c. royalty payments. d. marketing fees.

b. the initial franchise fee.

Juan rents out his car for others to use. Juan is participating in a. the gig economy. b. the sharing economy. c. both the gig and sharing economies. d. none of these choices.

b. the sharing economy.

The advantages of independent contracting include a. being eligible for unemployment benefits when work is not steady. b. working more flexible hours. c. having needed tools provided by the hiring small business owner. d. all of these choices.

b. working more flexible hours.

In what way is a franchisee's freedom to run the business greatly reduced? a. Most franchisors are located near the franchisee. b. The franchisees are technically employees of the franchisor. c. The franchisee is bound by the terms of the franchise contract. d. The franchisee is completely dependent on the franchisor for funding.

c. The franchisee is bound by the terms of the franchise contract.

H&R Block was sued by a franchisee for selling Internet services within the franchisee's territory without offering any compensation. This is an example of a. churning. b. co-branding. c. encroachment. d. multibrand franchising

c. encroachment.

The advantages of being an independent contractor partnering with a platform, such as Airbnb or Uber, in the new economies include a. steady revenue. b. privacy. c. flexibility. d. limited liability.

c. flexibility.

Each month, Tomas must report his gross income and pay a percentage of that amount to his franchisor. This percentage a. is negotiable every month. b. represents finance charges. c. is a royalty fee. d. is an investment cost.

c. is a royalty fee.

The disadvantages of independent contracting include a. earning less money on an hourly basis. b. having to adhere to the direct orders of the hiring small business owner. c. lacking a steady paycheck. d. all of these choices.

c. lacking a steady paycheck.

Jeffrey's job is to identify potential businesspeople in his country who might want to do business using a particular brand name. When the contract is signed, Jeffrey then provides training to the businessperson. Jeffrey is most likely a a. franchisee. b. franchisor. c. master licensee. d. co-brander.

c. master licensee.

An entrepreneur would choose a franchise over an independent startup most likely because of the a. freedom in decision making. b. guidance provided for organizational structure. c. probability of success. d. opportunities to meet and share ideas with other executives.

c. probability of success.

The two primary forms of franchising are _____ franchising and _____ franchising. a. product; service b. co-branding; multibrand c. product and trade name; business format d. individual; business

c. product and trade name; business format

The offer and sale of a franchise are a. regulated by state laws exclusively. b. regulated by federal laws exclusively. c. regulated by both state and federal laws. d. not regulated.

c. regulated by both state and federal laws.

One of the most important features of the franchise contract is the provision relating to a. the sale or transfer of the franchise to a government entity. b. changes in management. c. termination and transfer of the franchise. d. termination of contracts with suppliers.

c. termination and transfer of the franchise.

Franchisors support their franchisees by doing which of the following? a. Providing training b. Reducing purchasing costs c. Designing promotional campaigns d. All of these choices

d. All of these choices

Of the following, where would you suggest someone look for information about possible franchise opportunities? a. International Franchise Association b. Entrepreneur magazine c. State offices where franchises are registered d. All of these choices

d. All of these choices

Which of the following is a common restriction imposed on franchisees? a. Imposing requirements regarding outlet appearance b. Limiting sales territories c. Limiting advertising and hours of operation d. All of these choices

d. All of these choices

Which of the following is a reason a small business would hire an independent contractor? a. To assist with temporary short-term tasks b. To provide expertise in one area that the small business owner is lacking c. To avoid payroll expenses d. All of these choices

d. All of these choices

Which of the following is an example of a company that engages in business format franchising? a. Choice Hotels b. Carl's Jr. c. Jani-King d. All of these choices

d. All of these choices

Which of the following is anticipated for the future of the gig and sharing economies? a. Increased state regulations b. Increased federal regulations c. A participation rate of 50% of the workforce d. All of these choices

d. All of these choices

Which of the following is considered an advantage of franchising? a. Franchising can be a way for existing companies to diversify. b. Attractive franchisors offer value because they have names and trademarks that are well known to prospective customers. c. A number of franchisors provide or facilitate financing for franchisees. d. All of these choices are correct.

d. All of these choices are correct.

Bart is meeting with a representative of GHI, a franchisor. He has received information about the franchisor's finances, experience, size, and involvement in litigation. Bart has been given a a. master license. b. nondisclosure statement. c. franchise rule. d. Franchise Disclosure Document (FDD).

d. Franchise Disclosure Document (FDD).

Which of the following statements about the International Franchise Association (IFA) is true? a. The IFA maintains a registry of franchisors who have gone through an eligibility review service. b. Firms joining the IFA today are required to adhere to a code of ethics, the values of which are "trust, truth, and honesty." c. The IFA demands adherence to laws and offers conflict resolution services for franchisees and franchisors. d. The IFA encourages franchisors to recruit minorities and veterans as franchisees by offering financial incentives.

d. The IFA encourages franchisors to recruit minorities and veterans as franchisees by offering financial incentives.

A potential franchisee should be wary of contract provisions that a. do not clearly spell out the rights of the franchisee to sell the business to a third party. b. do not discuss contract renewal after the business has been built up to a successful operating level. c. contain overly strict or vague cancellation policies. d. all of these choices

d. all of these choices

A person hired to perform a task is an independent contractor if a. the hired individual retains control over the actual work to be done. b. the hired individual is working offsite. c. the work is on a part-time basis. d. all of these choices.

d. all of these choices.

Martina's franchise agreement allows her to open up to seven new stores within a 100-mile radius of the first one. Martina is best described as a(n) a. master licensee. b. co-branding franchisee. c. multi-branding franchisor. d. area developer.

d. area developer.

When hiring an independent contractor, the payer a. can specify how the work will be done. b. can specify the starting and ending times of each day's work schedule. c. must withhold taxes from the contractor's payment. d. can only specify the result of the work.

d. can only specify the result of the work.

Martin operates an ABC franchise. Recently, the franchisor has attempted to claim violations to the contract so as to terminate Martin's license. The franchisor is engaging in a. master licensing. b. encroachment. c. due diligence. d. churning.

d. churning.

One way of maintaining the status of an independent contractor in the gig and sharing economies is to a. proactively seek more opportunities. b. sign up with more than one platform. c. perform work for more than one company. d. do all of these choices.

d. do all of these choices.

A franchise contract is a. drafted by both the franchisee and franchisor. b. drafted by, and most likely favors, the franchisee. c. drafted by the franchisee's attorney. d. drafted by, and most likely favors, the franchisor.

d. drafted by, and most likely favors, the franchisor.

The legal agreement Irma signed with McDonald's that allows her to open a restaurant using the McDonald's name is a(n) a. master license. b. area development plan. c. lend-lease agreement d. franchise contract.

d. franchise contract.

Matthew is an individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory. Matthew is a(n) a. multiple-unit franchisor. b. area developer. c. franchisor representative. d. master licensee.

d. master licensee.

Rick was so successful with his Sweet Treats franchise that he opened several other Sweet Treats locations. Rick could best be described as a a. multi-branding franchisor. b. co-branding franchisee. c. master licensee. d. multiple-unit owner.

d. multiple-unit owner.

A(n) _____ may be the single most valuable tool provided to a franchisee. a. Franchise Disclosure Document (FDD) b. marketing plan c. code of ethics d. operations manual

d. operations manual

The disadvantages of being an independent contractor partnering with a platform, such as Airbnb or Uber, in the new economies include a. trust issues. b. lack of flexibility. c. difficulty of obtaining business. d. revenue flow issues.

d. revenue flow issues.

In addition to the regular monthly payment of a percentage of gross income to her franchisor, Wilma is required to submit a smaller percentage for advertising costs. She is willing to do this because a. otherwise she will not be able to operate her franchise. b. she will receive a discount on the cost of her inventory. c. she will in turn be charged a lower insurance premium. d. the franchisor can promote the business more cost-efficiently than Wilma can on her own.

d. the franchisor can promote the business more cost-efficiently than Wilma can on her own.