Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

Accepted Answer

Sole proprietorships have many features

Question 3

Tee Time Golf Club just announced plans to purchase the property and assume the obligations of Chipper's Golf Resort, one of its major competitors. Tee Time Golf Club's plans are an example of a merger.

Accepted Answer

A) True 
 B)False

Question 4

Maria is already a successful franchisee with Nite Lite, a chain of "no frills" motels that provide clean rooms and good service at affordable rates. The motel she currently operates is located in Texas, but she is considering an opportunity to open another Nite Lite motel in Canada. Although her costs of operating in a foreign nation may be higher, she has the benefit of an expanding market and less competition.

Accepted Answer

A) True 
 B)False

Question 5

To many businesspeople, one of the major attractions of a sole proprietorship is

Accepted Answer

A)  the ability to obtain additional financial resources. 
B)  the protection of limited liability. 
C)  an unlimited lifespan. 
D)  the chance to be their own boss. 
A)  the ability to obtain additional financial resources. 
B)  the protection of limited liability. 
C)  an unlimited lifespan. 
D)  the chance to be their own boss.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets.

Accepted Answer

A) True 
 B)False

Question 8

Sole proprietors sometimes have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

Accepted Answer

A) True 
 B)False

Question 9

One of the major disadvantages of a sole proprietorship is the

Accepted Answer

A)  possibility of disagreements between owners. 
B)  unlimited liability the owner has for the debts of the firm. 
C)  fact that any income earned by this type of business is taxed twice. 
D)  high cost of starting or ending the company. 
A)  possibility of disagreements between owners. 
B)  unlimited liability the owner has for the debts of the firm. 
C)  fact that any income earned by this type of business is taxed twice. 
D)  high cost of starting or ending the company.

Question 10

The strategy of investors who are attempting a leveraged buyout is to

Accepted Answer

A)  shape up the company for quick resale. 
B)  use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves. 
C)  secure ownership of all of the existing stock in a company by issuing and selling large amounts of new stock. 
D)  use investment tax credits from the government to acquire all of the physical assets owned by the firm. 
A)  shape up the company for quick resale. 
B)  use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves. 
C)  secure ownership of all of the existing stock in a company by issuing and selling large amounts of new stock. 
D)  use investment tax credits from the government to acquire all of the physical assets owned by the firm.

Question 11

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

One disadvantage of a limited liability company is that it

Accepted Answer

A)  requires all earnings of the business be taxed at the corporate rate. 
B)  has a limited life span. 
C)  requires the owners to divide up profits and losses in a fixed proportion. 
D)  has a more restrictive ownership requirement than S corporations. 
A)  requires all earnings of the business be taxed at the corporate rate. 
B)  has a limited life span. 
C)  requires the owners to divide up profits and losses in a fixed proportion. 
D)  has a more restrictive ownership requirement than S corporations.

Question 14

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 15

A separation between ownership and management is most likely to occur in a

Accepted Answer

A)  sole proprietorship. 
B)  general partnership. 
C)  corporation. 
D)  limited liability partnership. 
A)  sole proprietorship. 
B)  general partnership. 
C)  corporation. 
D)  limited liability partnership.

Question 16

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Accepted Answer

A) True 
 B)False

Question 17

James and Reilly were arguing over who was the senior partner and who was the junior partner, even though they started the business at the same time. If you were brought on board as their business advisor, you would explain to them that all partnerships have at least one general partner (known as the senior partner) and one limited partner (known as the junior partner).

Accepted Answer

A) True 
 B)False

Question 18

The coattail effect refers to inevitable repercussions on your business if a fellow franchisee should fail.

Accepted Answer

A) True 
 B)False

Question 19

The reason a professional such as a lawyer or doctor would incorporate his/her business is

Accepted Answer

A)  to be assured that another professional firm would not take over and make decisions, similar to a hostile takeover. 
B)  to comply with the law because insurance companies require that they be corporations. 
C)  to protect his/her other assets with limited liability. 
D)  to protect his/her assets with unlimited liability. 
A)  to be assured that another professional firm would not take over and make decisions, similar to a hostile takeover. 
B)  to comply with the law because insurance companies require that they be corporations. 
C)  to protect his/her other assets with limited liability. 
D)  to protect his/her assets with unlimited liability.

Question 20

An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

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

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

Tee Time Golf Club just announced plans to purchase the property and assume the obligations of Chipper's Golf Resort, one of its major competitors. Tee Time Golf Club's plans are an example of a merger.

To many businesspeople, one of the major attractions of a sole proprietorship is

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

A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets.

Sole proprietors sometimes have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

One of the major disadvantages of a sole proprietorship is the

The strategy of investors who are attempting a leveraged buyout is to

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

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

One disadvantage of a limited liability company is that it

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

A separation between ownership and management is most likely to occur in a

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

The coattail effect refers to inevitable repercussions on your business if a fellow franchisee should fail.

The reason a professional such as a lawyer or doctor would incorporate his/her business is

An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

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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