BA3305 Entre - Chp 6

Which of the following statements about family businesses succession is true? A. Turning over management authority is not easy for most founders. B. Fewer than 10 percent of family-owned businesses are successfully transferred to a second generation. C. It is easy for the heir of the founder to assume authority. D. Fewer than 5 percent family-owned businesses succeed long enough to be inherited by the third.

A. Turning over management authority is not easy for most founders.

Which of the following terms best represents something a 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

Which of the following terms means "let the buyer beware"? A. Caveat lector B. Spin-off C. Caveat emptor D. Synergy

C. Caveat emptor

A combination in which the whole is greater than the sum of its component parts refers to: A. revolving credit. B. synergy. C. microinventory. D. spin-off.

B. synergy.

Which of the following is true for start-ups? A. It has initial name recognition. B. A start-up is also known as an earn-out. C. It involves purchases of existing businesses. D. It can provide new, unique products or services that are not available.

D. It can provide new, unique products or services that are not available.

The process of investigating a business to determine its value is called: A. synergy. B. spin-off. C. heuristics. D. due diligence.

D. due diligence.

The difference between original acquisition cost and the amount of accumulated depreciation is called the: A. replacement value. B. book value. C. earnings multiple. D. discounted cash flow.

B. book value.

Which of the following is one of the ways to get into small business management? A. Narrowcasting B. Franchising C. Expropriating D. Onboarding

B. Franchising

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

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

A. mentoring programs

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. primary

A. revolving

The value of a franchise is determined by: A. the rights granted. B. the conditions and standards set. C. the operating permissions granted. D. the value of assets acquired.

A. the rights granted.

Which of the following would avoid intrafamily strife when the family business is passed down to the next generation? A. Providing each member of the family business with the opportunity to obtain education and experience within the business. B. 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. C. Being certain that all family members know and accept that they must join the business to continue the family business. D. Always assume that the leadership of the business must come from within the family.

B. 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.

A business that is created by separating parts of an operating business into a separate entity is called a: A. synergy. B. franchise. C. spin-off. D. turnkey project.

C. spin-off.

A new business that has begun from scratch is called a: A. buyout. B. franchise. C. start-up. D. buy-in.

C. start-up

Which of the following is a disadvantage of purchasing an existing business? A. Need for sufficient demand for the products and services to operate profitably. B. Purchasing a business being significantly more expensive than a start-up. C. Need to hire many new employees when buying an existing business. D. Existing managers and employees resisting change.

D. Existing managers and employees resisting change.

_____ 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. Codicils D. Heuristics

D. Heuristics

Which of the following is essential to the success of all start-ups when one uses the "lean" entrepreneurial methods? A. Having experience managing large firms B. Not encouraging standardizing repetitive characteristics of a business C. Starting a business with a sole founder D. Keeping in touch with one's customers

D. Keeping in touch with one's customers

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

Patents and trade secrets are examples of: A. employee stock option plans. B. heuristics. C. franchising. D. intangibles.

D. intangibles.

The ratio of the value of a firm to its annual earnings is called: A. unappropriated profit. B. accumulated earning. C. retained earning. D. the earnings multiple.

D. the earnings multiple.

_____ are the only way a sole proprietorship may be purchased. A. Buy-ins B. Takeovers C. Key resource acquisitions D. Buyouts

C. Key resource acquisitions

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

A. Difficulty in determining the worth of the business.

Which of the following holds true for product distribution franchising? A. It provides the franchisee with specific brand named products, which are resold by the franchisee in a specified territory. B. It provides an organization through which independent businesses may combine resources. C. It is an agreement that provides only the rights to use the franchisor's trade name and/or trademarks. D. It is an agreement that provides a complete business format.

A. It provides the franchisee with specific brand named products, which are resold by the franchisee in a specified territory.

The amount by which sales prices exceed product costs refers to: A. high margins. B. synergy. C. spin-off. D. asset.

A. high margins.

Which of the following is essential to the success of all start-ups? A. Starting a business with low margins B. Not going into competition with one's employer C. Building trust in one's "story" D. Not starting a business with one's established customers

C. Building trust in one's "story"

_____ are the cash flows that have been reduced in value because they are to be received in the future. A. Book value cash flows B. Replacement value cash flows C. Free cash flows D. Discounted cash flows

D. Discounted cash flows

_____ 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

Which of the following is the primary goal for performing due diligence? A. Finding any inefficiencies, unnoticed opportunities, waste, and mismanagement B. Conducting extensive interviews with the sellers of the business C. Identifying the potential competitors of the company D. Studying the competitive strategies of the company

A. Finding any inefficiencies, unnoticed opportunities, waste, and mismanagement

Which of the following is most likely to be an advantage of a start-up? A. It begins with a clean slate. B. It has initial name recognition. C. It is easy to establish and it immediately provides positive cash flow. D. It has easy access to revolving credit.

A. It begins with a clean slate.

Which of the following is most likely to be the best indicator of successful start-ups? A. Level of experience of the founders B. Social background of the founders C. Financial background of the founders D. Specific educational courses taken by the founder

A. Level of experience of the founders

Which of the following is the last step for performing due diligence? A. Obtain sufficient capital to purchase and operate the business. B. Conduct extensive interviews with the sellers of the business. C. Interview customers and suppliers of the business. D. Study the financial reports and other records of the business.

A. Obtain sufficient capital to purchase and operate the business.

Which of the following ensures that a new business will be critically examined by outsiders who have no vested interest in the owners' idea, product, or service? A. Securing outside investment B. Starting with more than one founder C. Having previous experience of managing small firms D. Having a detailed start-up budget

A. Securing outside investment

Which of the following is most likely to increase the odds of start-up successes? A. Starting business in a business incubator B. Securing investment from family or friends C. Having experience of managing large firms D. Starting with one founder

A. Starting business in a business incubator...

Which of the following is most likely to be 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 when buying an existing business.

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

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. blue ocean strategy. C. green field investment. D. cartel.

A. franchise.

Which of the following is the first step for performing due diligence? A. Study the financial reports and other records of the business. B. Conduct extensive interviews with the sellers of the business. C. Obtain sufficient capital to purchase and operate the business. D. Make a personal examination of the site (or sites) of the business.

B. Conduct extensive interviews with the sellers of the business.

Which of the following provides a buffer for the mistakes made by a start-up business? A. Liquidation B. High margins C. Effectuation D. Mindshare

B. High margins

Which of the following is one important advantage of key resource allocation? A. It has a financial plan for the future, based on a single level of operations; a quantitative expression of the use of resources necessary to achieve a business's strategic goals. B. As only assets are acquired, a subsequent business, regardless of its legal form, is not responsible for any of the acts or transactions made prior to purchasing the business. C. It has an agreement between two or more entities to pool resources in order to complete a project. D. It specifies the time that is required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale.

B. As only assets are acquired, a subsequent business, regardless of its legal form, is not responsible for any of the acts or transactions made prior to purchasing the business.

Which of the following is a financial statement that will be checked during due diligence when buying an existing business? A. White paper B. Balance sheet C. Codicil D. Amicus brief

B. Balance sheet

Which of the following would be a plus point for starting a new business? A. Initial name recognition B. Clean slate to begin C. "Legacy" locations, buildings, and equipment D. Accessibility to experienced managers and workers

B. Clean slate to begin

Which of the following is commonly used to estimate the value of a business? A. Synergy B. Comparable sales of other firms C. Spin-offs D. Industry heuristics

B. Comparable sales of other firms

Which of the following refers to income capitalization? A. Regular and systematic reduction in income that transfers asset value to expense over time. B. Dividing projected net income excluding depreciation, interest, and owner draws, by the best return that you could expect to obtain in other investments. C. Multiplying your estimate of future earnings by the net income to equity ratio. D. The amount of profit earned by a business before calculating the amount of income tax owed.

B. Dividing projected net income excluding depreciation, interest, and owner draws, by the best return that you could expect to obtain in other investments.

The single greatest hurdle to a successful start-up is obtaining and maintaining sufficient cash to support both operations and growth. Which of the following is needed by a successful start-up to overcome this hurdle? A. Reserve price B. High margins C. Spin-off D. Liquidation

B. High margins

Which of the following is a disadvantage of a start-up? A. It cannot begin with a "clean slate." B. It cannot easily gain revolving credit. C. It does not provide the owner with the opportunity to use the most up-to-date technologies. D. It cannot provide new, unique products or services.

B. It cannot easily gain revolving credit.

Which of the following is an agreement that provides only the rights to use the franchisor's trade name and/or trademarks? A. Product distribution franchising B. Trade name franchising C. Conversion franchising D. Business format franchising

B. Trade name franchising

In many franchises the franchiser oversees (or even manages) the selection of location, the construction of facilities, the acquisition and installation of necessary equipment, and the initial inventory with which to open business. Which of the following terms best represents this type of franchising? A. Cannibalization B. Turnkey C. Liquidation D. Consignment

B. Turnkey

Which of the following is a disadvantage of buying a franchise? A. It is more expensive than starting a new business. B. You give up control of marketing and operations. C. You compete with the franchise company itself. D. You receive no training and management support.

B. You give up control of marketing and operations.

Seizing of control of a business by purchasing its stock to be able to select the board of directors refers to a(n): A. buy-in. B. takeover. C. merger. D. earn-out.

B. takeover.

The price at which a buyer is indifferent about buying or not buying the business is called: A. the balance point. B. the point of indifference. C. caveat emptor. D. the reversing point.

B. the point of indifference.

_____ strengthen the local economy by helping create jobs through the establishment of successful small businesses. A. Joint venture firms B. Consultancies C. Business incubators D. Trade associations

C. Business incubators

_____ provides an organization through which independent businesses may combine resources. A. Product distribution franchising B. Trade name franchising C. Conversion franchising D. Business format franchising

C. Conversion franchising

Which of the following is accomplished by a small business when it secures outside investment? A. Business can be started by a sole individual. B. Founders take part in a mentoring program. C. It indicates a level of belief in the business and the owner. D. Business can be started by an individual without prior experience.

C. It indicates a level of belief in the business and the owner.

Sam used his management skills to start a loans advising website. He started seeing clients at his home before it grew into a well-established company in the next ten years. Which of the following entrepreneurial methods did he use in the beginning, to reduce the financial risk of his start-up? A. Franchise B. Consignment C. Lean method D. Liquidation

C. Lean method

Which of the following is an excellent way to find businesses for sale? A. Statistical surveys B. Local community center C. Networking D. Universities

C. Networking

Purchases of existing businesses may occur through _____ in which the business is bought over a period of time with money obtained from the business. A. green field investments B. blue ocean strategies C. earn-outs D. leveraged buyouts

C. earn-outs

The amount for which an asset would sell, less the costs of selling the asset is called: A. book value. B. replacement value. C. net realizable value. D. earnings multiple.

C. net realizable value.

The primary advantage to a buyout is its: A. hands-off approach. B. significantly less cost. C. simplicity. D. employee stock option plan.

C. simplicity.