Question 1

One reason individuals incorporate is to obtain the advantage of limited liability.

Accepted Answer

A) True 
 B)False

Question 2

Jocelyn belongs to a food cooperative in her community. As a member, she can expect to have a vote in the election of the cooperative's board of directors.

Accepted Answer

A) True 
 B)False

Question 3

People who form cooperatives:

Accepted Answer

A)  believe the government should play a larger role in the economy. 
B)  dislike the notion of having owners, managers, and customers as separate individuals with separate goals. 
C)  see competitive behavior as the key to ensuring rapid economic growth. 
D)  want to find a way to supply basic necessities free of charge to everyone. 
A)  believe the government should play a larger role in the economy. 
B)  dislike the notion of having owners, managers, and customers as separate individuals with separate goals. 
C)  see competitive behavior as the key to ensuring rapid economic growth. 
D)  want to find a way to supply basic necessities free of charge to everyone.

Question 4

Marilyn paid a sizeable franchise fee to obtain a Fontmaster Printers franchise in Cleveland, Ohio. With the franchise fee behind her, she can look forward to using her creative talents to make her print shop different and more attractive than other Fontmaster shops in the Cleveland area.

Accepted Answer

A) True 
 B)False

Question 5

Alex's uncle recently passed away and left him an American Dream Real Estate franchise business. Alex is not a licensed agent or broker, nor does he know anything about the real estate business. He plans to sell his American Dream franchise to his friend Derek, who recently got his real estate license. One of the advantages of owning a franchise is that you can decide to sell out to anyone you believe is suitable for the business.

Accepted Answer

A) True 
 B)False

Question 6

Stockholders in a corporation accept unlimited liability for the corporation's debts.

Accepted Answer

A) True 
 B)False

Question 7

The coattail effect refers to the burden of corporate rules and regulations on franchisees.

Accepted Answer

A) True 
 B)False

Question 8

Sierra is interested in becoming a franchise owner, by opening and operating one of 50 Cactus Katie's Grills, a very successful fast food chain specializing in food dishes from the American southwest. Which of the following problems is Sierra most likely to encounter if she agrees to become a franchisee?

Accepted Answer

A)  High initial costs and fees 
B)  Poor name recognition and visibility 
C)  Lack of financing 
D)  Lack of managerial assistance 
A)  High initial costs and fees 
B)  Poor name recognition and visibility 
C)  Lack of financing 
D)  Lack of managerial assistance

Question 9

According to the Spotlight on Small Business box, restaurants aren't the only franchises attractive to potential franchisees. Some prefer a low-cost and easily reproducible business model.

Accepted Answer

A) True 
 B)False

Question 10

Franchising has certainly become a key component of the U.S. economy. What are the major advantages and disadvantages of franchising?

Accepted Answer

Students should be able to identify and

Question 11

If a partner in a limited partnership dies, the partnership ceases to exist.

Accepted Answer

A) True 
 B)False

Question 12

A limited partnership consists of one or more general partners and one or more limited partners.

Accepted Answer

A) True 
 B)False

Question 13

One reason limited liability companies have become so popular is that they:

Accepted Answer

A)  can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation. 
B)  allow owners to sell their interests in the company without requiring approval from other owners. 
C)  have unlimited life. 
D)  permit owners to avoid paying self-employment taxes on the company's profits. 
A)  can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation. 
B)  allow owners to sell their interests in the company without requiring approval from other owners. 
C)  have unlimited life. 
D)  permit owners to avoid paying self-employment taxes on the company's profits.

Question 14

A significant disadvantage of owning a sole proprietorship is the:

Accepted Answer

A)  possibility of limited liability. 
B)  heavy tax liability that must be assumed. 
C)  overwhelming time commitment often required of the owner. 
D)  lack of incentives to motivate the owner. 
A)  possibility of limited liability. 
B)  heavy tax liability that must be assumed. 
C)  overwhelming time commitment often required of the owner. 
D)  lack of incentives to motivate the owner.

Question 15

Ramon lives in Mexico City and is a Mexican citizen. He has several friends in the United States who own shares in an S corporation. Ramon would like to invest in this company. Ramon:

Accepted Answer

A)  can invest in this company, but must pay both U.S. and Mexican taxes. 
B)  cannot become a shareholder since he is not a citizen or permanent resident of the U.S. 
C)  can become a shareholder but cannot become a manager, and his income must be paid in pesos. 
D)  needs approval from the Mexican government before he can invest. 
A)  can invest in this company, but must pay both U.S. and Mexican taxes. 
B)  cannot become a shareholder since he is not a citizen or permanent resident of the U.S. 
C)  can become a shareholder but cannot become a manager, and his income must be paid in pesos. 
D)  needs approval from the Mexican government before he can invest.

Question 16

The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

Accepted Answer

A) True 
 B)False

Question 17

The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits.

Accepted Answer

A) True 
 B)False

Question 18

Describe and differentiate between the three types of corporate mergers. Give an example of each type.

Accepted Answer

A vertical merger is the joining of two

Question 19

The three major types of mergers are acquisition, joint, and connective.

Accepted Answer

A) True 
 B)False

Question 20

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

One reason individuals incorporate is to obtain the advantage of limited liability.

Jocelyn belongs to a food cooperative in her community. As a member, she can expect to have a vote in the election of the cooperative's board of directors.

People who form cooperatives:

Marilyn paid a sizeable franchise fee to obtain a Fontmaster Printers franchise in Cleveland, Ohio. With the franchise fee behind her, she can look forward to using her creative talents to make her print shop different and more attractive than other Fontmaster shops in the Cleveland area.

Stockholders in a corporation accept unlimited liability for the corporation's debts.

The coattail effect refers to the burden of corporate rules and regulations on franchisees.

According to the Spotlight on Small Business box, restaurants aren't the only franchises attractive to potential franchisees. Some prefer a low-cost and easily reproducible business model.

Franchising has certainly become a key component of the U.S. economy. What are the major advantages and disadvantages of franchising?

If a partner in a limited partnership dies, the partnership ceases to exist.

A limited partnership consists of one or more general partners and one or more limited partners.

One reason limited liability companies have become so popular is that they:

A significant disadvantage of owning a sole proprietorship is the:

Ramon lives in Mexico City and is a Mexican citizen. He has several friends in the United States who own shares in an S corporation. Ramon would like to invest in this company. Ramon:

The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits.

Describe and differentiate between the three types of corporate mergers. Give an example of each type.

The three major types of mergers are acquisition, joint, and connective.

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Union and Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Risk

Extension: Managing Personal Finances

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