Question 1

Before buying an existing business,the buyer should analyze two external elements of the business:

Accepted Answer

A) its capital and market potential. 
B) its customer characteristics and direct competitors. 
C) its intangible assets and financial status. 
D) the market potential of the products and the existing inventory. 
A) its capital and market potential. 
B) its customer characteristics and direct competitors. 
C) its intangible assets and financial status. 
D) the market potential of the products and the existing inventory. B

Question 2

In general,in negotiations and acquisitions of a business,the buyer seeks to:

Accepted Answer

A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) Both A and B 
D) None of the above 
A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) Both A and B 
D) None of the above C

Question 3

The ________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

Accepted Answer

A) balance sheet 
B) capitalized earnings 
C) excess earnings 
D) discounted future earnings 
A) balance sheet 
B) capitalized earnings 
C) excess earnings 
D) discounted future earnings D

Question 4

The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

Accepted Answer

A) the rate of return reflecting the risk level. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing rate of inflation. 
A) the rate of return reflecting the risk level. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing rate of inflation.

Question 5

To be effective,a bulk transfer must meet which of the following criteria?

Accepted Answer

A) The buyer must give the seller a sworn list of existing creditors. 
B) The buyer and seller must prepare a list of the property included in the sale. 
C) The seller must give notice of the sale. 
D) The seller must keep the list of creditors for six months. 
A) The buyer must give the seller a sworn list of existing creditors. 
B) The buyer and seller must prepare a list of the property included in the sale. 
C) The seller must give notice of the sale. 
D) The seller must keep the list of creditors for six months.

Question 6

"Knocking on the doors" of businesses an entrepreneur would like to buy-although they are not advertised "for sale"-is a waste of time.

Accepted Answer

A) True 
 B)False

Question 7

Entrepreneurs who want to pass their businesses on to their children should consider forming a:

Accepted Answer

A) Sale of Controlling Interest. 
B) Family Limited Partnership. 
C) Family Limited Liability Corporation. 
D) None of the above 
A) Sale of Controlling Interest. 
B) Family Limited Partnership. 
C) Family Limited Liability Corporation. 
D) None of the above

Question 8

Which of the following statements concerning the financing of a business purchase is true?

Accepted Answer

A) Often,the business seller is a poor source of financing. 
B) The buyer should be able to make the payments on the loans out of the company's cash flow. 
C) The buyer should begin arranging financing late in the purchasing process,to avoid the processing expenses if the deal falls through. 
D) Traditional lenders tend to be more eager to lend on an existing business than they are with a start-up. 
A) Often,the business seller is a poor source of financing. 
B) The buyer should be able to make the payments on the loans out of the company's cash flow. 
C) The buyer should begin arranging financing late in the purchasing process,to avoid the processing expenses if the deal falls through. 
D) Traditional lenders tend to be more eager to lend on an existing business than they are with a start-up.

Question 9

Which of the following is not a critical area of business that is investigated during due diligence?.

Accepted Answer

A) Motivation 
B) Employee issues 
C) Asset valuation 
D) Legal issues 
A) Motivation 
B) Employee issues 
C) Asset valuation 
D) Legal issues

Question 10

A buyer should never trust the firm's balance sheet evaluation of inventory but should conduct an independent assessment of inventory age and salability.

Accepted Answer

A) True 
 B)False

Question 11

A(n)________ is a form of employee benefit plan in which a trust created for employees purchases their employers' stock.

Accepted Answer

A) Sale of controlling interest 
B) Family Limited Partnership 
C) Family Limited Liability Corporation 
D) ESOP 
A) Sale of controlling interest 
B) Family Limited Partnership 
C) Family Limited Liability Corporation 
D) ESOP

Question 12

Which of the following is a drawback of the market approach of valuation?

Accepted Answer

A) It does not consider current earnings. 
B) It may under represent earnings. 
C) Its reliability depends on the forecasts of future earnings. 
D) It over emphasizes the value of goodwill. 
A) It does not consider current earnings. 
B) It may under represent earnings. 
C) Its reliability depends on the forecasts of future earnings. 
D) It over emphasizes the value of goodwill.

Question 13

When an entrepreneur purchases an existing business,he or she essentially is purchasing its future profit potential.

Accepted Answer

A) True 
 B)False

Question 14

Outline the logical approach one should take in buying a business,naming each step and explaining it briefly.

Accepted Answer

Buying a business can be a treacherous e

Question 15

How does one value a company using the balance sheet method? Why would an entrepreneur choose this method of valuation?

Accepted Answer

The balance sheet method computes the bo

Question 16

The market approach to company valuation evaluates goodwill,risk-of-return,and estimated net earnings.

Accepted Answer

A) True 
 B)False

Question 17

In the market approach,the technique to calculate the value of a company is:

Accepted Answer

A) ROI. 
B) P/E. 
C) ROA. 
D) P/A. 
A) ROI. 
B) P/E. 
C) ROA. 
D) P/A.

Question 18

Using the discounted future earnings approach,the buyer estimates:

Accepted Answer

A) the company's net income for the next six months. 
B) the company's net income for the several years. 
C) the company's net income for several years and then discounted back to the present value. 
D) the company's net asset for several years and then discounted back to the present value. 
A) the company's net income for the next six months. 
B) the company's net income for the several years. 
C) the company's net income for several years and then discounted back to the present value. 
D) the company's net asset for several years and then discounted back to the present value.

Question 19

The mechanics of most small business sales involve:

Accepted Answer

A) a cash buyout with no financing. 
B) a down payment with a note carried by the seller. 
C) no down payment with a note carried by the seller. 
D) an exchange of one company's stock for another,and stock options for senior managers. 
A) a cash buyout with no financing. 
B) a down payment with a note carried by the seller. 
C) no down payment with a note carried by the seller. 
D) an exchange of one company's stock for another,and stock options for senior managers.

Question 20

What guidelines should be kept in mind when deciding how to value a company?

Accepted Answer

There are few hard-and-fast rules in est

Exam 5: Buying an Existing Business

Before buying an existing business,the buyer should analyze two external elements of the business:

In general,in negotiations and acquisitions of a business,the buyer seeks to:

The ________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

To be effective,a bulk transfer must meet which of the following criteria?

"Knocking on the doors" of businesses an entrepreneur would like to buy-although they are not advertised "for sale"-is a waste of time.

Entrepreneurs who want to pass their businesses on to their children should consider forming a:

Which of the following statements concerning the financing of a business purchase is true?

Which of the following is not a critical area of business that is investigated during due diligence?.

A buyer should never trust the firm's balance sheet evaluation of inventory but should conduct an independent assessment of inventory age and salability.

A(n)________ is a form of employee benefit plan in which a trust created for employees purchases their employers' stock.

Which of the following is a drawback of the market approach of valuation?

When an entrepreneur purchases an existing business,he or she essentially is purchasing its future profit potential.

Outline the logical approach one should take in buying a business,naming each step and explaining it briefly.

How does one value a company using the balance sheet method? Why would an entrepreneur choose this method of valuation?

The market approach to company valuation evaluates goodwill,risk-of-return,and estimated net earnings.

In the market approach,the technique to calculate the value of a company is:

Using the discounted future earnings approach,the buyer estimates:

The mechanics of most small business sales involve:

What guidelines should be kept in mind when deciding how to value a company?

Entrepreneurs: the Driving Force Behind Small Business

Strategic Management and the Entrepreneur

Choosing a Form of Ownership

Franchising and the Entrepreneur

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Creating a Solid Financial Plan

Managing Cash Flow

Building a Guerrilla Marketing Plan

Creative Use of Advertising and Promotion

Pricing and Credit Strategies

Global Marketing Strategies

E-Commerce and Entrepreneurship

Sources of Equity Financing

Sources of Debt Financing

Location,layout,and Physical Facilities

Supply Chain Management

Managing Inventory

Staffing and Leading a Growing Company

Management Succession and Risk Management Strategies in the Family Business

Ethics and Social Responsibility: Doing the Right Thing

The Legal Environment: Business Law and Government Regulation

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