BA Chapter 6

Franchise

A legal agreement that allows a business to be operated using the name and business procedures of another firm.

Discounted Cash Flows

Cash flows that have been reduced in value because they are to be received in the future.

Point of Indifference

The price at which a buyer is indifferent about buying or not buying the business.

Buy-In

The purchase of substantially less than 100 percent of a business.

Caveat Emptor

Latin: let the buyer beware.

Business Format Franchising

An agreement that provides a complete business format, including trade name, operational procedures, marketing, and products or services to sell.

Conversion Franchising

An agreement that provides an organization through which independent businesses may combine resources.

Product Distribution Franchising

An agreement that provides specific brand name products which are resold by the franchisee in a specified territory.

Cash Flows

The actual receipt and spending of cash by a business.

Net Realizable Value

The amount for which an asset will sell, less the cost of selling.

Replacement Value

The cost to acquire an essentially identical asset.

Due Diligence

The process of investigating a business to determine the value.

Buyout

The purchase of substantially all of an existing business.

Earnings Multiple

The ratio of the value of a firm to its annual earnings.

Trade Name Franchising

An agreement that provides to the franchise only the rights to use the franchisor's trade name and/or trademarks.

Intangibles

Assets, such as patents or trademarks, and liabilities, such as accounts payable, that have no physical existence.

ESOP

Employee stock option plan: a method for employees to purchase the business for which they work.

Spin-Off

A business that is created by separating part of an operating business into a separate entity.

Synergy

A combination in which the whole is greater than the sum of its components parts.

Heuristic

A common-sense rule, a rule-of-thumb.

Founder

People who create or start a new business.

Takeover

Seizing of control of a business by purchasing its stock to be able to select the board of directors.

Asset

Something the business owns that is expected to have economic value in the future.

Revolving Credit

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.

Start-Up

A new business that is started from scratch.

Home-Based Businesses

Businesses that are operated from the owner's home.

Book Value

The difference between the original acquisition cost and the amount of accumulated depreciation.