Question 1

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

Accepted Answer

A) True 
 B)False

Question 2

A person who buys the right to use a business name and sell a product within a given territory is called a:

Accepted Answer

A) Stockholder. 
B) Franchisee. 
C) Limited franchisor. 
D) Venture capitalist. 
A) Stockholder. 
B) Franchisee. 
C) Limited franchisor. 
D) Venture capitalist.

Question 3

Hole In One Golf Company announced plans to purchase the property and assume the obligations of Champion Golf,Inc. ,one of its major competitors.Hole In One Golf Company's plans are an example of a merger.

Accepted Answer

A) True 
 B)False

Question 4

A merger is a mutual agreement where a firm joins together with another firm,whereas an acquisition is when one firm purchases the assets and obligations of another firm.

Accepted Answer

A) True 
 B)False

Question 5

One of the major disadvantages of a partnership is that profits must be divided equally.

Accepted Answer

A) True 
 B)False

Question 6

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Accepted Answer

A) True 
 B)False

Question 7

The following companies: Blue Diamond,Ocean Spray,and Land O'Lakes are well known cooperatives.

Accepted Answer

A) True 
 B)False

Question 8

Compared to sole proprietorships,partnerships offer the advantage of shared management and pooled knowledge.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Starting a new business as a sole proprietorship:

Accepted Answer

A) Requires retaining the services of an attorney. 
B) Is simple,but the proprietorship fee is very expensive in some states. 
C) Is usually simpler and less expensive than starting other forms of ownership. 
D) Is very similar to starting a business as a corporation. 
A) Requires retaining the services of an attorney. 
B) Is simple,but the proprietorship fee is very expensive in some states. 
C) Is usually simpler and less expensive than starting other forms of ownership. 
D) Is very similar to starting a business as a corporation.

Question 11

Joe Jackson operates a sole proprietorship,but he is in poor health and may be unable to continue running the business.If Joe becomes incapacitated,his business:

Accepted Answer

A) Automatically continues under new management as a sole proprietorship. 
B) Automatically converts into a public corporation with stock sold to interested investors. 
C) Ceases to exist unless sold or taken over by Joe's heirs. 
D) Becomes the property of the most senior employee who wishes to continue operating the firm. 
A) Automatically continues under new management as a sole proprietorship. 
B) Automatically converts into a public corporation with stock sold to interested investors. 
C) Ceases to exist unless sold or taken over by Joe's heirs. 
D) Becomes the property of the most senior employee who wishes to continue operating the firm.

Question 12

States may levy special taxes on corporations that are not imposed on other businesses.

Accepted Answer

A) True 
 B)False

Question 13

If a franchisee decides he wants out of the business,he is free to close-up shop or sell the business,just as if he were a sole proprietor or partnership outside of a franchise arrangement.

Accepted Answer

A) True 
 B)False

Question 14

The S corporation form of business would be particularly attractive to fast growing companies that want to attract thousands of new stockholders.

Accepted Answer

A) True 
 B)False

Question 15

In the Legal Briefcase box,"Vermont Wants to be the Home of Your New Virtual Company,"

Accepted Answer

A) The box discusses the Vermont Teddy Bear Company and their difficulty in going from an S-Corporation to a C-Corporation. 
B) The box talks about a newly created LLC in Vermont called the Virtual Company,where all members contribute their skills through electronic communication. 
C) The box discusses how the state of Vermont wants to attract business,yet refuses to permit the electronic submission of filing for any form of business ownership. 
D) The box talks about the Vermont maple syrup industry and how due to the fact that it is a seasonal business,it cannot exist virtually.The labor intensive business requires the expertise of experienced tree tappers. 
A) The box discusses the Vermont Teddy Bear Company and their difficulty in going from an S-Corporation to a C-Corporation. 
B) The box talks about a newly created LLC in Vermont called the Virtual Company,where all members contribute their skills through electronic communication. 
C) The box discusses how the state of Vermont wants to attract business,yet refuses to permit the electronic submission of filing for any form of business ownership. 
D) The box talks about the Vermont maple syrup industry and how due to the fact that it is a seasonal business,it cannot exist virtually.The labor intensive business requires the expertise of experienced tree tappers.

Question 16

With respect to taxes,the sole proprietorship:

Accepted Answer

A) Pays taxes on the profits of the business at the same rate that corporations pay taxes. 
B) Pays taxes on the profits of the business,at the owner's personal tax rate. 
C) Pays taxes only if there are no expenses associated with the business. 
D) Is permitted to determine its own tax rate and schedule of payments. 
A) Pays taxes on the profits of the business at the same rate that corporations pay taxes. 
B) Pays taxes on the profits of the business,at the owner's personal tax rate. 
C) Pays taxes only if there are no expenses associated with the business. 
D) Is permitted to determine its own tax rate and schedule of payments.

Question 17

One reason that a firm would choose to merge or acquire another company would be to gain market share.

Accepted Answer

A) True 
 B)False

Question 18

Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of Western Kentucky.They operated the business as a general partnership.After 11 months,the business went broke and Jamie and Maria were left with outstanding bills of $37,500,which was more than their initial investment in the company.Jamie and Maria can:

Accepted Answer

A) Lose their personal assets as the result of their company's financial problems. 
B) Lose only the funds they originally invested in their company. 
C) Lose only the total value of the assets actually used to operate the business. 
D) Avoid any liability for these debts since a partnership is considered to be a business entity that is separate and distinct from the partners who own it. 
A) Lose their personal assets as the result of their company's financial problems. 
B) Lose only the funds they originally invested in their company. 
C) Lose only the total value of the assets actually used to operate the business. 
D) Avoid any liability for these debts since a partnership is considered to be a business entity that is separate and distinct from the partners who own it.

Question 19

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 20

Which of the following is an advantage of a partnership?

Accepted Answer

A) Ease of starting and ending the business 
B) Unlimited liability 
C) Shared management and pooled skills 
D) Little time commitment 
A) Ease of starting and ending the business 
B) Unlimited liability 
C) Shared management and pooled skills 
D) Little time commitment

Exam 5: How to Form a Business

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

A person who buys the right to use a business name and sell a product within a given territory is called a:

Hole In One Golf Company announced plans to purchase the property and assume the obligations of Champion Golf,Inc. ,one of its major competitors.Hole In One Golf Company's plans are an example of a merger.

A merger is a mutual agreement where a firm joins together with another firm,whereas an acquisition is when one firm purchases the assets and obligations of another firm.

One of the major disadvantages of a partnership is that profits must be divided equally.

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

The following companies: Blue Diamond,Ocean Spray,and Land O'Lakes are well known cooperatives.

Compared to sole proprietorships,partnerships offer the advantage of shared management and pooled knowledge.

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

Starting a new business as a sole proprietorship:

Joe Jackson operates a sole proprietorship,but he is in poor health and may be unable to continue running the business.If Joe becomes incapacitated,his business:

States may levy special taxes on corporations that are not imposed on other businesses.

If a franchisee decides he wants out of the business,he is free to close-up shop or sell the business,just as if he were a sole proprietor or partnership outside of a franchise arrangement.

The S corporation form of business would be particularly attractive to fast growing companies that want to attract thousands of new stockholders.

In the Legal Briefcase box,"Vermont Wants to be the Home of Your New Virtual Company,"

With respect to taxes,the sole proprietorship:

One reason that a firm would choose to merge or acquire another company would be to gain market share.

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

Which of the following is an advantage of a partnership?

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding How Economics Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

Entrepreneurship and Starting a Small Business

Management and Leadership

Adapting Organizations to Todays Markets

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employee-Management Issues and Relationships

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

Bonus A: Using Technology to Manage Information

Bonus B: Managing Risk

Bonus C: Managing Your Personal Finances

Appendix: Working Within the Legal Environment

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