Entrepreneurship Test

(True or False (2 points each)

1. Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

a. True

b. False

2. The primary drawback of franchising to the franchisee is that you must give up some control, some decision-making power, and some freedom.

a. True

b. False

3. When individuals have a general idea of the franchise that they are interested in, they should contact the company and ask for a copy of the disclosure statement.

a. True

b. False

4. Due diligence is the process of fact finding to determine the total condition of a business being considered for purchase

a. True

b. False

5. Due diligence is the process of fact finding to determine the total condition of a business being considered for purchase

a. True

b. False

 

Multiple Choice (2 Points Each)

1. The process of gathering and verifying the accuracy of information included in the franchise agreement and all other information provided by the franchisor is called

a. Deductive reasoning

b. Preemptory investigation

c. Due diligence

d. Market research

2. While traveling across country over the summer, Gwen and Audrey stayed in well-known, franchised accommodations rather than opting for independent, unknown motels. This example demonstrates which advantage to franchisees?

a. Efficiency

b. Financial assistance

c. Professional guidance

d. Proven product

3. A McDonald’s hamburger that tastes the same at any location in the world is an example

of which of the following benefits to the franchisee?

a. Recognized standards

b. Marketing expertise

c. Efficiency

d. Professional guidance

4. Information that franchisors are required to provide to potential franchisees is contained in which of the following documents?

a. Franchise agreement

b. Purchasing contract

c. Disclosure statement

d. Profit-and- loss statement

5. Royalty fees are calculated as a percentage of

a. Gross sales

b. Gross profit

c. Net profit

d. Pretax revenue

 

Scenario 5-1. Connie is considering opening a small bakery called Connie’s Cookie Cupboard. She loves to bake cookies. Family and friends have told her she should consider opening a small business using her baking skills. Connie has no business experience and no idea where to start in opening her own business. She also has very few funds available. One day she is glancing through the newspaper and notices an ad for a bakery franchise that would like to open an outlet in the local mall. The franchise provides everything from equipment to packaging to full business services. She decides to look into the opportunity further.

 

6. In Scenario 5-1 above, all but which of the following would be a major advantage for Connie in choosing to purchase a franchise as opposed to opening her own business?

a. Marketing expertise

b. Managerial assistance

c. Proven product

d. The cost of the franchise

7. In scenario 5-1 above, which of the following would be the major disadvantage for Connie in purchasing a franchise?

a. Potential for business growth

b. Restrictions other freedom and creativity

c. Marketing expertise

d. Quality control standards

8. In scenario 5-1 above, which of the following types of franchises is the bakery franchise?

a. Product franchising

b. Business-format franchising

c. Service franchising

d. Joint venture

 

9. In Scenario 5-1 above, which of the following advantages from the franchisor would benefit Connie the most?

a. Quality product

b. Efficiency

c. Professional guidance

d. An opportunity to learn

10. Which of the following is not an advantage to buying an existing business?

a. Image is difficult to change

b. Employees are experienced

c. The seller may be willing to provide some financing

d. Inventory and equipment are already in place

11. Tabitha is considering the purchase of a seemingly successful retail establishment, but first she would like to gain an understanding of why the business is being sold. With whom should she speak?

a. The current owner only

b. The current owner and customers only

c. Customers and suppliers only

d. The current owner, customers and suppliers

12. What of these is used to indicate whether sales volume is increasing or decreasing?

a. Financial records

b. Independent audit

c. Expense ratio

d. Working capital statement

13. Before any serious discussion of purchasing a business occurs, a/an__should be conducted.

a. Financial ratio analysis

b. Income statement analysis

c. Independent audit

d. IRS review

14. To ensure that all back taxes have been paid, a potential buyer should inspect

a. Unaudited financial documents

b. Income tax returns

c. The seller’s books

d. Loan agreements

 

15. Financial information can be sensitive information. In order to allay the fears of the seller, a potential buyer could

a. Not ask to see financial information

b. Only show the information to an accountant

c. Only show the information to a banker

d. Write a letter of confidentiality

 

 

16. Industry averages for expense ratios comparing expenses to__exist for every size and type of business.

a. Profits

b. Assets

c. Liabilities

d. Sales

17. The prospective buyer should determine a price for the business by adding the value of tangible and intangible assets with the __potential.

a. Sales

b. Expenses

c. Income

d. Profit

18. Inventory, equipment, and building are examples of what kind of assets?

a. The most realistic Intangible assets

b. Tangible assets

c. Only current assets

d. Only long-term assets

19. Aging accounts receivable refers to the process of

a. Determining their present value

b. Determine their effect on sales

c. Determining how many are still collectible and discounting them accordingly

d. Determining future customer lists.

20. Assets that have value to a business but are not visible are known as

a. Intangible assets

b. Tangible assets

c. Long-term assets

d. Current assets

21. Samantha was in the final stages of selling her existing business, but she backed out of the deal at the last minute because the buyer asked her to sign a contract stating that she would not enter into a similar business within the state for at least 15 years, This is an example of

a. A reasonable intellectual property contract

b. An unreasonable intellectual property contract

c. A reasonable noncompete clause

d. An unreasonable noncompete clause

22. The most realistic approach for the buyer in determining the value of tangible assets is through

a. Book value

b. Replacement value

c. Liquidation value

d. Balance sheet valuation

 

 

23. Wanda has dreams of opening her own pet shop called “Wanda Aquarium” Aside from thinking of a name and how her store will look, she has done very little planning at this very early stage. All she currently has is

a. A strategy

b. Financial means

c. An objective

d. A vision

24. The risk of failure is greater with

a. Existing businesses

b. Franchises

c. Startups

d. Existing family-owned businesses

25. A business that is more dependent on the services of people than on money and equipment is known as

a. A labor –intensive business

b. A capital-intensive business

c. A service-intensive business

d. A asset-intensive business

26. Manufacturing businesses are more

a. Labor intensive

b. Capital intensive

c. Service intensive

d. Asset intensive

27. Years before the regular use of iPads and tablet computers, the concept of portable, pen-based computers was introduced. However Go computers sold only 20,000 units and lasted only three years. This is ab example of an idea that

a. Has a long product life cycle

b. Has passed its window of opportunity

c. Is in demand by consumers

d. Is too far ahead of the market

28. During the ___stage in the product life cycle, the window of opportunity is wide open because little or no competition exists.

a. Introduction

b. Growth

c. Maturity

d. Decline

29. The final answer to whether an idea is ab opportunity that should be followed will come from a combination of

a. Research and a consultant’s advice

b. Intuition and experience

c. Research and intuition

d. The banker and the accountant

 

 

 

30. Which of the following questions addresses the most critical concern I beginning a new business?

a. Can I find skilled employees to hire?

b. Will I make a profit

c. Who is my target market?

d. Is there a need for this business?

 

Essay Questions (10 Points each)

 

1. List and describe three major advantages of franchising for the franchisee.

 

 

 

 

 

2. List and describe two advantages and two disadvantages of buying an existing business.

 

 

 

3. Analyze two advantages and two disadvantages of starting a business from scratch,