Question 1

When investors successfully take a firm private, the firm's stock is:

Accepted Answer

A)  converted into bonds. 
B)  converted into cash. 
C)  no longer sold to investors on the open market. 
D)  pledged as collateral to its bondholders. 
A)  converted into bonds. 
B)  converted into cash. 
C)  no longer sold to investors on the open market. 
D)  pledged as collateral to its bondholders.

Question 2

A ______________ merger unites firms at different stages of related businesses.

Accepted Answer

A)  vertical 
B)  horizontal 
C)  diagonal 
D)  conglomerate 
A)  vertical 
B)  horizontal 
C)  diagonal 
D)  conglomerate

Question 3

Which of the following statements about buying a franchise is most accurate?

Accepted Answer

A)  One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed. 
B)  Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market. 
C)  Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained. 
D)  Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business. 
A)  One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed. 
B)  Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market. 
C)  Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained. 
D)  Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business.

Question 4

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

Accepted Answer

A)  merger 
B)  aggregate 
C)  acquisition 
D)  unequivocal buy-in 
A)  merger 
B)  aggregate 
C)  acquisition 
D)  unequivocal buy-in

Question 5

Jenna plans to invest in a cleaning service franchise called Spare Time. At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

Accepted Answer

A)  the initial investment, also known as the franchise fee paid to the franchisor. 
B)  the cost of supplies that she will purchase one time each month from the parent company. 
C)  milestones that the parent company expects her to reach. With each milestone, she will be rewarded with commissions. 
D)  a share of the profits or a percentage share of revenues (net sales). 
A)  the initial investment, also known as the franchise fee paid to the franchisor. 
B)  the cost of supplies that she will purchase one time each month from the parent company. 
C)  milestones that the parent company expects her to reach. With each milestone, she will be rewarded with commissions. 
D)  a share of the profits or a percentage share of revenues (net sales).

Question 6

A franchise may be organized as a sole proprietorship, partnership, or corporation.

Accepted Answer

A) True 
 B)False

Question 7

All partners in a general partnership have limited liability for the debts of their firm.

Accepted Answer

A) True 
 B)False

Question 8

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

Accepted Answer

A)  sole proprietorship. 
B)  cooperative. 
C)  C corporation. 
D)  general partnership. 
A)  sole proprietorship. 
B)  cooperative. 
C)  C corporation. 
D)  general partnership.

Question 9

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

Accepted Answer

A) True 
 B)False

Question 10

A conglomerate merger will:

Accepted Answer

A)  diversify business operations and investments. 
B)  allow the firm to have a less dominant position in its market. 
C)  enable the firm to enjoy a higher degree of specialization. 
D)  give the firm a more secure access to needed materials and components and better control over quality. 
A)  diversify business operations and investments. 
B)  allow the firm to have a less dominant position in its market. 
C)  enable the firm to enjoy a higher degree of specialization. 
D)  give the firm a more secure access to needed materials and components and better control over quality.

Question 11

Stock options are the right to purchase shares of the corporation for a fixed price.

Accepted Answer

A) True 
 B)False

Question 12

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Accepted Answer

A) True 
 B)False

Question 13

Nick wants to start his own business. Nick should consider a sole proprietorship if he:

Accepted Answer

A)  expects rapid growth and wants to be able to raise a large sum of money. 
B)  wants to make it easy to attract qualified employees. 
C)  wants to be his own boss and can accept unlimited liability. 
D)  wants to minimize the financial risk he must accept as the owner of a business. 
A)  expects rapid growth and wants to be able to raise a large sum of money. 
B)  wants to make it easy to attract qualified employees. 
C)  wants to be his own boss and can accept unlimited liability. 
D)  wants to minimize the financial risk he must accept as the owner of a business.

Question 14

The __________ is the most common form of business ownership.

Accepted Answer

A)  partnership 
B)  corporation 
C)  joint venture 
D)  sole proprietorship 
A)  partnership 
B)  corporation 
C)  joint venture 
D)  sole proprietorship

Question 15

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring businesspeople who are willing to pay agreed-upon fees and meet certain contractual terms. Daggie's:

Accepted Answer

A)  is offering investors the opportunity to form limited partnerships. 
B)  is a franchisor. 
C)  creates private subsidiary companies. 
D)  offers a tax-free investment potential. 
A)  is offering investors the opportunity to form limited partnerships. 
B)  is a franchisor. 
C)  creates private subsidiary companies. 
D)  offers a tax-free investment potential.

Question 16

A distinguishing feature of a cooperative is that it:

Accepted Answer

A)  maintains a distinct separation between ownership and management. 
B)  is only intended to operate for a limited period of time. 
C)  is owned and operated by the people who use it. 
D)  can have no more than 75 owners, all of whom must be citizens of the United States. 
A)  maintains a distinct separation between ownership and management. 
B)  is only intended to operate for a limited period of time. 
C)  is owned and operated by the people who use it. 
D)  can have no more than 75 owners, all of whom must be citizens of the United States.

Question 17

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

Accepted Answer

A) True 
 B)False

Question 18

When entering into a new partnership, a good strategy is to:

Accepted Answer

A)  avoid putting the agreement in writing since this would limit the flexibility of the partnership. 
B)  put the partnership agreement in writing. 
C)  plan to incorporate as soon as possible. 
D)  agree to put the first year's profits back into the partnership. 
A)  avoid putting the agreement in writing since this would limit the flexibility of the partnership. 
B)  put the partnership agreement in writing. 
C)  plan to incorporate as soon as possible. 
D)  agree to put the first year's profits back into the partnership.

Question 19

Two of Diana's friends have approached her about starting a new business. Diana is willing to invest money in the business and share in its profits, but she has no desire to be involved in the day-to-day management of the company, nor is she willing to risk any amount beyond her initial investment. Diana's preferences suggest that she prefers a general partnership form of business ownership.

Accepted Answer

A) True 
 B)False

Question 20

Your friend Brett called to tell you he just heard a sales pitch for a new website development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although you lack expertise in graphic design or html programming, this should be a safe investment since it is already advertised as a franchise system. It's probably too good to pass up.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

When investors successfully take a firm private, the firm's stock is:

A ______________ merger unites firms at different stages of related businesses.

Which of the following statements about buying a franchise is most accurate?

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

Jenna plans to invest in a cleaning service franchise called Spare Time. At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

A franchise may be organized as a sole proprietorship, partnership, or corporation.

All partners in a general partnership have limited liability for the debts of their firm.

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

A conglomerate merger will:

Stock options are the right to purchase shares of the corporation for a fixed price.

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Nick wants to start his own business. Nick should consider a sole proprietorship if he:

The __________ is the most common form of business ownership.

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring businesspeople who are willing to pay agreed-upon fees and meet certain contractual terms. Daggie's:

A distinguishing feature of a cooperative is that it:

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

When entering into a new partnership, a good strategy is to:

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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