ETR401 - Chapter 6

B

21. 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

A

22. 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.

B

79. This 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

A

80. Which of the following observations holds true of 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.

C

81. _____ 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

A

82. Which of the following are forms of franchising? A. Trade name, product distribution, and business format. B. Product, service, and mix-format. C. Regional, local, and global. D. Sole proprietorship, partnership, and corporation.

A

89. 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.

B

90. 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 management support.

A

39. The _____ phase is usually the most difficult time you will have in business. A. start-up B. work C. growth D. completion

A

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

B

44. 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.

A

47. All of the following holds true of creating spin-offs in businesses EXCEPT A. it is a regular business practice that is done by big businesses at the initial stages of business development. B. they are created to get rid of "noncore" activities. C. it is a business that is created by separating part of an operating business into a separate entity. D. some of them are created when the parent lacks either the interest or the resources to pursue the opportunity.

C

48. 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.

B

73. The purchase of substantially less than 100 percent of a business is called a A. takeover. B. buy-in. C. spin-off. D. buyout.

A

62. _____ 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

B

59. 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.

D

60. Patents and trade secrets are examples of A. ESOPs. B. heuristics. C. franchising. D. intangible assets.

D

61. _____ 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

64. 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.

B

65. 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.

C

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

D

54. 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.

A

55. This is not a reason for obtaining a set of financial statements when a business is acquired. A. The seller usually has to gather financial information and incurs added cost and time in providing them. B. As a business person you are most likely familiar with financial statements and can extract useful information from them. C. Financial statements are accepted as representative of the business by bankers and investors. D. Financial statements are considered to be indicators of future business results.

A

56. Which of the following steps is NOT a part of due diligence? A. Leveraging the contributions of the partner to provide faster growth. B. Studying the financial reports and other records of the business. C. Developing a detailed business plan for the acquisition. D. Conducting extensive interviews with the sellers of the business.

C

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

C

46. 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.

D

45. You can go about obtaining committed customers prior to start-up via all of the following ways EXCEPT A. starting a spin-off from your employer's business. B. competing with your employer. C. subcontracting services to your employer. D. getting your employer's business into an incubator.

C

67. 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.

D

63. The process of determining the net present value of an investment opportunity requires all of the following EXCEPT A. estimating the cash that must be invested. B. estimating the cash that will be returned. C. estimating the periods in the future in which cash inflows will occur. D. estimating the cost of capital to the seller.

C

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

C

24. 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

A

25. _____ franchise is one in which every part of setting up the business is handled by professionals. A. Turnkey B. Product or trade name C. Single unit D. Multi unit

A

26. Which of the following is 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 provide positive cash flow D. It has easy access to revolving credit

C

27. 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

B

74. Seizing of control of a business by purchasing its stock to be able to select the board of directors refers to A. buy-in. B. takeover. C. merger. D. heuristics.

D

84. 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.

C

42. Having multiple founders at a start-up is a key success indicator for all of the following EXCEPT A. providing a forum for examining ideas. B. evaluating information. C. dividing up the business risks and rewards. D. making good business decisions.

B

28. 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.

A

58. Which of the following is a primary goal of due diligence? A. Finding any wrongdoing B. Paying the top dollar for the business C. Fulfilling all requirements for state regulations D. Establishing yourself as a competitive threat

D

29. All of the following are disadvantages of a start-up EXCEPT A. absence of initial name recognition. B. access to revolving credit line. C. difficulty in financing. D. it starts with a clean slate.

A

30. _____ 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

31. 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

B

32. Often the only competitive advantage for a "me-too" start-up is the A. finance. B. location. C. marketing. D. subsidy.

D

33. 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

A

34. Research into the indicators of successful start-ups shows that one of the best predictors of success is A. the level of experience of the founders. B. suggestions from friends and associates. C. random events. D. specific education courses.

D

35. Doing all of the following things has been shown to be the most effective route to success EXCEPT A. starting a business in a business incubator. B. securing outside investment. C. taking part in a mentoring program. D. starting with one founder.

A

36. 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

37. Which of the following statements about business incubators is false? A. Incubator participants have individual office services, such as telephone answering, and production and copying of documents. B. They provide access to angel investors, public grants for seed money, and technology support. C. They are created to strengthen the local economy by helping create jobs through the establishment of successful small businesses. D. They aid in the commercialization of new technologies, the revitalization of distressed neighborhoods, and the creation of wealth.

A

38. 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

40. 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.

B

41. 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.

C

49. Which of the following statements about home-based businesses is true? A. Having a business based at home increases the cash flow requirements of a start-up business. B. From around 1960 to 1980, home-based businesses largely fell out of favor. C. Because of the proximity of the business to the living area, no time is spent commuting between home and office. D. The U.S. Small Business Administration estimates that 93 percent of all businesses are home-based, putting the number at around 15 million firms.

B

50. 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.

D

51. 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.

C

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

C

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

B

66. 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.

C

68. _____ is an estimate of what an identical asset would cost to be acquired and readied for service. A. Earnings multiple B. Book value C. Replacement value D. Net realizable value

B

69. _____ of other firms in the same industry are commonly used to estimate the value of a business. One major problem with this method is that no two firms are exactly alike. A. Synergies B. Comparable sales C. Spin-offs D. Industry heuristics

D

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

D

71. _____ 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

B

72. The price at which a buyer is indifferent about buying or not buying the business is called A. spin-off. B. the point of indifference. C. caveat emptor. D. ESOP.

C

75. The primary advantage to a buyout is A. hands-off approach. B. significantly less cost. C. simplicity. D. ESOP.

A

77. 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

78. Which of the following statements determines the value of a franchise? A. By the rights granted. B. By the conditions and standards set. C. By the operating permissions granted. D. By the value of assets acquired.

A

83. 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.

D

85. Which of the following statements about the professional management of small businesses is false? A. If a business grows large enough, no matter how experienced a business owner is, eventually the demands of managing will become too great to be handled alone. B. As small businesses grow, the business starts to decline. C. As small businesses grow, professional managers are hired to share the management load. D. In terms of small business, professional management is an issue of education, titles, and credentials.

C

86. 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

87. 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

D

88. 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