Question 1

Unlimited liability means

Accepted Answer

A)  when you own your own business you are responsible for all the business debts. 
B)  you are only liable for the money you invest in the business. 
C)  as a franchisee your franchisor is responsible for the debts of the franchise. 
D)  you are liable for whatever advertising promises your firm makes. 
A)  when you own your own business you are responsible for all the business debts. 
B)  you are only liable for the money you invest in the business. 
C)  as a franchisee your franchisor is responsible for the debts of the franchise. 
D)  you are liable for whatever advertising promises your firm makes.

Question 2

When investors successfully take a firm private, the company'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 3

For 11 years, Dennis and Tom have owned a car wash business as partners. Now they would like their younger brother Jimmy to join them. Unfortunately, partnership law states that only two partners can participate in a partnership.

Accepted Answer

A) True 
 B)False

Question 4

Earnings of C corporations can be

Accepted Answer

A)  taxed twice if they are distributed as dividends to stockholders. 
B)  taxed at twice the going rate of a partnership or sole proprietorship. 
C)  taxed by the federal government, but they are exempt from state taxes if the corporation owns any facilities within that state. 
D)  taxed the same as a partnership. 
A)  taxed twice if they are distributed as dividends to stockholders. 
B)  taxed at twice the going rate of a partnership or sole proprietorship. 
C)  taxed by the federal government, but they are exempt from state taxes if the corporation owns any facilities within that state. 
D)  taxed the same as a partnership.

Question 5

The difference between a merger and an acquisition is

Accepted Answer

A)  a merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities. 
B)  a merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another. 
C)  a merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources. 
D)  a merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one, more like two major interstates that come together and travel as one for several miles. 
A)  a merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities. 
B)  a merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another. 
C)  a merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources. 
D)  a merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one, more like two major interstates that come together and travel as one for several miles.

Question 6

Kevin is a major stockholder in Professional Transmission Services (PTS), a nationwide network of transmission repair shops founded in 1975 by his father. Currently, PTS stock is sold on the open market, but Kevin has talked to several relatives about his desire to get all of the PTS stock back in his family's hands. Kevin is interested in ________.

Accepted Answer

A)  taking the firm private 
B)  a hostile takeover of the firm 
C)  converting the firm to a general partnership 
D)  forming a master limited partnership 
A)  taking the firm private 
B)  a hostile takeover of the firm 
C)  converting the firm to a general partnership 
D)  forming a master limited partnership

Question 7

When two companies in completely unrelated industries agree to become one firm, the result is called a

Accepted Answer

A)  vertical merger. 
B)  joint venture. 
C)  conglomerate merger. 
D)  horizontal merger. 
A)  vertical merger. 
B)  joint venture. 
C)  conglomerate merger. 
D)  horizontal merger.

Question 8

In a typical franchise agreement, the franchisor pays the franchisee a fee to manage its company, and the two of them split the profits based on the percentages established in the agreement.

Accepted Answer

A) True 
 B)False

Question 9

Chipper is the sole proprietor of a golf shop. Because she is a sole proprietor, any profit Chipper's business earns is

Accepted Answer

A)  totally tax-free. 
B)  taxed only as Chipper's personal income. 
C)  taxed twice, once as business income, then again as Chipper's personal income. 
D)  taxed only if and when it is distributed to investors. 
A)  totally tax-free. 
B)  taxed only as Chipper's personal income. 
C)  taxed twice, once as business income, then again as Chipper's personal income. 
D)  taxed only if and when it is distributed to investors.

Question 10

Mac and Charlie own a car repair shop that they operate as co-owners. Both take an active role in the management of the business, and each accepts unlimited liability. Mac and Charlie operate as a

Accepted Answer

A)  joint venture. 
B)  general partnership. 
C)  limited partnership. 
D)  cooperative. 
A)  joint venture. 
B)  general partnership. 
C)  limited partnership. 
D)  cooperative.

Question 11

The purpose of a farm cooperative is to

Accepted Answer

A)  give members more economic power as a group than they would have as individuals. 
B)  give each farm an equal share in the running of the cooperative. 
C)  equalize the members' standard of living. 
D)  allow socialism a foothold in the U.S. 
A)  give members more economic power as a group than they would have as individuals. 
B)  give each farm an equal share in the running of the cooperative. 
C)  equalize the members' standard of living. 
D)  allow socialism a foothold in the U.S.

Question 12

To change ownership in a corporation you simply sell your stock to someone else.

Accepted Answer

A) True 
 B)False

Question 13

A disadvantage of corporations is that they generally require extensive paperwork.

Accepted Answer

A) True 
 B)False

Question 14

Melanie, Elliot, and Caleb agreed to partner in a small home rehab business. Initially, they were enthusiastic and eager workers. That is until their first project took more work than Melanie initially estimated, Elliot wanted morning meetings and long lunch hours, and Caleb decided to go on vacation even though the home was not complete and ready to sell. As Figure 5.2 indicates,

Accepted Answer

A)  it's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership. 
B)  it's smart to organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership. 
C)  it's smart to designate one of the partners as the primary partner with final authority to call all the shots. 
D)  it's smart to enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities. 
A)  it's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership. 
B)  it's smart to organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership. 
C)  it's smart to designate one of the partners as the primary partner with final authority to call all the shots. 
D)  it's smart to enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities.

Question 15

An evaluation of franchising would conclude that this type of arrangement

Accepted Answer

A)  has become the dominant form of business organization in the United States because it has many advantages and almost no disadvantages. 
B)  appeals to people who want to own a business, but are not comfortable starting a company from scratch. 
C)  has a much higher risk of failure than independent companies. 
D)  has little chance of success outside the United States because many foreign countries do not allow such arrangements. 
A)  has become the dominant form of business organization in the United States because it has many advantages and almost no disadvantages. 
B)  appeals to people who want to own a business, but are not comfortable starting a company from scratch. 
C)  has a much higher risk of failure than independent companies. 
D)  has little chance of success outside the United States because many foreign countries do not allow such arrangements.

Question 16

One of the major advantages for the franchisee is instant business name recognition and important management assistance from the franchisor.

Accepted Answer

A) True 
 B)False

Question 17

Few people today start their own business.

Accepted Answer

A) True 
 B)False

Question 18

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Accepted Answer

A) True 
 B)False

Question 19

Declan plans to open up three Pizza Pals franchises in the greater Phoenix area. He tells you that he plans to negotiate with the franchisor to get rid of the giant Preston the Pizza that sits on the roof of all Pizza Pal restaurants. Declan is likely to learn that

Accepted Answer

A)  the parent company will give him a start-up cost break for the same amount that it would have to pay for three of these signs. 
B)  he is making a smart decision because it is not the sign that will bring customers to his pizza joint. It is the wide selection of toppings and six different crust offerings that keep the customers coming in. 
C)  it is nonnegotiable due to company rules. 
D)  his failure rate will not increase or decrease because franchises traditionally have low failure rates. 
A)  the parent company will give him a start-up cost break for the same amount that it would have to pay for three of these signs. 
B)  he is making a smart decision because it is not the sign that will bring customers to his pizza joint. It is the wide selection of toppings and six different crust offerings that keep the customers coming in. 
C)  it is nonnegotiable due to company rules. 
D)  his failure rate will not increase or decrease because franchises traditionally have low failure rates.

Question 20

Doughboys is a small chain of cookie dough shops owned and operated by eight partners. With the rise of cookie dough shops around the country, the owners think that their chain has the potential for rapid growth. However, several of the partners are concerned about the growing financial risks that will accompany this growth. One way the partners could deal with this problem would be to incorporate their business.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

Unlimited liability means

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

For 11 years, Dennis and Tom have owned a car wash business as partners. Now they would like their younger brother Jimmy to join them. Unfortunately, partnership law states that only two partners can participate in a partnership.

Earnings of C corporations can be

The difference between a merger and an acquisition is

When two companies in completely unrelated industries agree to become one firm, the result is called a

In a typical franchise agreement, the franchisor pays the franchisee a fee to manage its company, and the two of them split the profits based on the percentages established in the agreement.

Chipper is the sole proprietor of a golf shop. Because she is a sole proprietor, any profit Chipper's business earns is

Mac and Charlie own a car repair shop that they operate as co-owners. Both take an active role in the management of the business, and each accepts unlimited liability. Mac and Charlie operate as a

The purpose of a farm cooperative is to

To change ownership in a corporation you simply sell your stock to someone else.

A disadvantage of corporations is that they generally require extensive paperwork.

An evaluation of franchising would conclude that this type of arrangement

One of the major advantages for the franchisee is instant business name recognition and important management assistance from the franchisor.

Few people today start their own business.

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Declan plans to open up three Pizza Pals franchises in the greater Phoenix area. He tells you that he plans to negotiate with the franchisor to get rid of the giant Preston the Pizza that sits on the roof of all Pizza Pal restaurants. Declan is likely to learn that

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 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

Working Within the Legal Environment

Using Technology to Manage Information

Managing Risk

Managing Personal Finances

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