mana 3325 chapter 7

43) The goal of the due diligence process is to discover exactly what the buyer is purchasing and avoid any unpleasant surprises ________ the deal is closed. A) before B) after C) during D) while

B) after

36) The ________ market consists of low-profile companies that might be for sale but are not advertised as such. A) venture capitalist B) franchise C) hidden D) broker

C) hidden

72) Which of the following is not a document required to close the deal? A) Letter of intent B) Bill of sale C) Asset purchase agreement D) Non-compete agreement

A) Letter of intent

2) When done correctly, the due diligence process will ________. A) reveal both the positive and negative aspects of an existing business B) be time consuming and expensive C) most often result in the purchase of the business D) rarely prove to be beneficial

A) reveal both the positive and negative aspects of an existing business

22) The first stage in acquiring a business is ________. A) search B) due diligence C) valuation D) negotiation

A) search

62) The ________ of the deal is more important than the price the seller agrees to pay. A) structure B) art C) value D) speed

A) structure

24) Negotiation take place ________. A) throughout the five stages in acquiring a business B) in the due diligence stage C) in the valuation stage D) in the transition stage

A) throughout the five stages in acquiring a business

53) The ________ method considers the future income potential of the business. A) earnings B) market C) balance sheet D) fixed price

A)earning

42) ________ involves the process of studying, reviewing, and verifying all the relevant information concerning an acquisition. A) Negotiation B) Due diligence C) Valuation D) Opportunity identification

B) Due diligence

37) Which of the following is typically not a question to ask in conducting a self-inventory? A) What business activities do you enjoy least? B) What kind of business do you not want to avoid? C) Which industries interest you most? D) What do you expect to get out of the business?

B) What kind of business do you not want to avoid?

7) The process of investigating the details of a company that is for sale to determine the strengths, weaknesses, opportunities and threats facing it is known as the ________ process. A) hidden market B) due diligence C) skimming D) business assessment

B) due diligence

25) The letter of intent is a ________ document. A) binding B) nonbinding C) transferable D) final

B) nonbinding

6) An entrepreneur who is considering purchasing a business is analyzing a company's accounts receivable. The following table summarizes her findings. Age of Accounts Amount Probability of Collection 0 - 30 days $12,000 .96 31 - 60 days $ 4,000 .87 61 - 90 days $ 2,500 .71 91 - 120 days $ 1,400 .65 121+ days $ 800 .24 How much should this potential buyer be willing to pay for these accounts receivable? A) Nothing; a buyer should never purchase existing accounts receivable. B) $20,700 C) $17,877 D) Not enough information given to determine

C) $17,877

32) The first step an entrepreneur should take when buying an existing business is to ________. A) explore financing options B) prepare a list of potential candidates C) analyze his or her skills, abilities, and interests in an honest self-audit D) contact existing business owners in the area and ask if their companies are for sale

C) analyze his or her skills, abilities, and interests in an honest self-audit

52) The ________ method establishes the value of a company by computing the book value of its net worth, or owner's equity. A) earnings B) market C) balance sheet D) multiples

C) balance shee

3) Advantages to buying an existing business that you do not have with a startup include ________. A) greater access to venture capital B) the opportunity to participate in a national advertising campaign C) inventory is in place and trade credit is established D) easy implementation of innovations and changes from past policies

C) inventory is in place and trade credit is established

44) The due diligence process involves investigating four critical areas of the business, which are ________, asset valuation, legal issues, and financial condition. A) negotiation B) business valuation C) motivation D) planning

C) motivation

5) When evaluating the assets of an existing business, the inventory ________. A) is always current and salable B) usually appreciates over time, making the business a bargain C) should be judged on the basis of its market value, not its book value D) is usually stated honestly and does not need an independent audit

C) should be judged on the basis of its market value, not its book value

63) The structure of the deal refers to the ________. A) price paid B) method of payment C) terms and conditions of payment D) legality of the process

C) terms and conditions of payment

35) Bizbuysell.com and Bizquest are examples of Internet sites that provide access to ________. A) business brokers B) franchises available for sale C) the hidden market of companies for sale D) All of the above

C) the hidden market of companies for sale

21) Which of the following is not a stage in acquiring a business? A) due diligence B) negotiation C) valuation D) transition

C) valuation

23) Roughly ________ businesses change ownership each year. A) 200,000 B) 300,000 C) 400,000 D) 500,000

D) 500,000

1) The due diligence process of analyzing and evaluating an existing business ________. A) may be just as time consuming as the development of a comprehensive business plan for a start-up B) helps to determine if the company will generate sufficient cash to pay for itself and leave you with a suitable rate of return on your investment C) helps to determine what the company's potential for success is D) All of the above

D) All of the above

33) When acquiring a business, the buyer should ________. A) conduct a self-analysis of skills, abilities, and interests B) develop a list of criteria that define the "ideal business" for the buyer C) prepare a list of potential candidates that meet the criteria D) All of the above

D) All of the above

4) Which of the following is a potential disadvantage of purchasing an existing business? A) The employees inherited with the business may not be suitable. B) The previous owner may have created ill will among the company's customers. C) Equipment and facilities may be obsolete or inefficient. D) All of the above

D) All of the above

34) Which of the following is not a source for the hidden market? A) Networking B) Business brokers C) Industry contacts D) All of the above are sources for the hidden market

D) All of the above are sources for the hidden market

73) Which of the following should a business owner do to avoid a bumpy transition? A) Concentrate on communicating with employees. B) Devote time to selling the vision for the company to its key stakeholders. C) Consider asking the seller to serve as a consultant until the transition is complete. D) All of the above.

D) All of the above.

54) ________ is the difference between an established, successful business and one that has yet to prove itself. A) Net worth B) Equity C) Multiple D) Goodwill

D) Goodwill

64) ________ is what a business is actually worth. A) Price B) Goodwill C) Equity D) Value

D) Value