Question 1

The entrepreneur who buys an existing business must recognize that accounts receivable rarely are worth their "face value."

Accepted Answer

A) True 
 B)False

Question 2

There are three components in the rate of return used to value a business.The component(s)are:

Accepted Answer

A) risk-free return. 
B) an inflation premium. 
C) the risk allowance for investing in the particular business. 
D) All of the above 
A) risk-free return. 
B) an inflation premium. 
C) the risk allowance for investing in the particular business. 
D) All of the above

Question 3

The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

Accepted Answer

A) True 
 B)False

Question 4

Once an entrepreneur has evaluated him/herself,the next step in the acquisition process would be to:

Accepted Answer

A) explore financing options. 
B) prepare a list of potential candidates and investigate them. 
C) work on a smooth transition. 
D) evaluate the physical condition of the business. 
A) explore financing options. 
B) prepare a list of potential candidates and investigate them. 
C) work on a smooth transition. 
D) evaluate the physical condition of the business.

Question 5

When the buyer is examining the income statements,tax returns,and balance sheets of the business,he/she is seeking an answer to the basic question:

Accepted Answer

A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered? 
A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered?

Question 6

When seeking to evaluate the financial soundness of the company prior to purchase,the buyer needs to examine several specific financial elements including:

Accepted Answer

A) the company's lease agreement for its facilities. 
B) any current product liability suits. 
C) the current owner's (and relatives')compensation. 
D) the physical plant and existing inventory. 
A) the company's lease agreement for its facilities. 
B) any current product liability suits. 
C) the current owner's (and relatives')compensation. 
D) the physical plant and existing inventory.

Question 7

A company's P/E ratio is:

Accepted Answer

A) the price of one share of its common stock divided by its earnings per share. 
B) its profits per share divided by its equity per share. 
C) its profits per share divided by its excess cash flow per share. 
D) the price of one share of its common stock divided by external capitalization. 
A) the price of one share of its common stock divided by its earnings per share. 
B) its profits per share divided by its equity per share. 
C) its profits per share divided by its excess cash flow per share. 
D) the price of one share of its common stock divided by external capitalization.

Question 8

It is important to develop a list of criteria that a potential business acquisition must meet.

Accepted Answer

A) True 
 B)False

Question 9

It is important to remember when assessing the financial soundness of a company that:

Accepted Answer

A) if profits are adequate,there will be sufficient funds to pay salaries and fund cash flow. 
B) cash flow is the key financial element in determining financial soundness. 
C) revenues need to equal twice the debt load in order for the company to be viable. 
D) the buyer is buying the past revenues and profits of the company. 
A) if profits are adequate,there will be sufficient funds to pay salaries and fund cash flow. 
B) cash flow is the key financial element in determining financial soundness. 
C) revenues need to equal twice the debt load in order for the company to be viable. 
D) the buyer is buying the past revenues and profits of the company.

Question 10

To avoid a bumpy transition,a business buyer should do the following:

Accepted Answer

A) concentrate on communicating with employees. 
B) be honest with employees. 
C) listen to employees restructure the company & devote time to selling your vision for the company to its key stakeholders. 
D) All of the above 
A) concentrate on communicating with employees. 
B) be honest with employees. 
C) listen to employees restructure the company & devote time to selling your vision for the company to its key stakeholders. 
D) All of the above

Question 11

One way to get a mutually satisfying deal when negotiating is to recognize and try to meet the other party's need(s).

Accepted Answer

A) True 
 B)False

Question 12

The process of gathering information about the company,valuing the company,and performing a detailed review of all records,agreements,and compliance is called:

Accepted Answer

A) a letter of intent. 
B) nondisclosure. 
C) valuation. 
D) due diligence. 
A) a letter of intent. 
B) nondisclosure. 
C) valuation. 
D) due diligence.

Question 13

When negotiating the deal,it is important to remember that the seller is looking for the best terms and to maintain some conduct with the company,at least for a while.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about valuing a business is true?

Accepted Answer

A) The balance sheet technique is the best way to value a business. 
B) Business valuation is partly art and partly science. 
C) Buyers should rely on established "rules of thumb" to decide what a company is worth. 
D) The primary reason buyers purchase existing businesses is to get their current earning potential. 
A) The balance sheet technique is the best way to value a business. 
B) Business valuation is partly art and partly science. 
C) Buyers should rely on established "rules of thumb" to decide what a company is worth. 
D) The primary reason buyers purchase existing businesses is to get their current earning potential.

Question 15

What are the common motivations for a business to be for sale?

Accepted Answer

There are three categories of motivation

Question 16

Most business buyers can expect to find detailed,accurate,and audited financial records in the companies they are looking at buying.

Accepted Answer

A) True 
 B)False

Question 17

ESOPs:

Accepted Answer

A) allow owners to transfer all or part of their companies to their employees as gradually or as quickly as they choose. 
B) work best in companies where pre-tax profits exceed $50,000. 
C) are beneficial for companies with fewer than 15 to 20 employees. 
D) are one way to sell to an international buyer. 
A) allow owners to transfer all or part of their companies to their employees as gradually or as quickly as they choose. 
B) work best in companies where pre-tax profits exceed $50,000. 
C) are beneficial for companies with fewer than 15 to 20 employees. 
D) are one way to sell to an international buyer.

Question 18

Review the five key legal issues an entrepreneur needs to consider when evaluating an existing business.

Accepted Answer

Business buyers face a myriad

Question 19

When negotiating the deal,the most important thing to remember is:

Accepted Answer

A) terms are more important than the price paid. 
B) to negotiate the lowest possible price. 
C) often the difference in available funds can be made up by collecting accounts payable. 
D) the owner of the business always asks 14-22% more than he/she is willing to take. 
A) terms are more important than the price paid. 
B) to negotiate the lowest possible price. 
C) often the difference in available funds can be made up by collecting accounts payable. 
D) the owner of the business always asks 14-22% more than he/she is willing to take.

Question 20

What key questions need to be answered in the process of due diligence?

Accepted Answer

The due diligence process involves inves

Exam 5: Buying an Existing Business

The entrepreneur who buys an existing business must recognize that accounts receivable rarely are worth their "face value."

There are three components in the rate of return used to value a business.The component(s)are:

The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

Once an entrepreneur has evaluated him/herself,the next step in the acquisition process would be to:

When the buyer is examining the income statements,tax returns,and balance sheets of the business,he/she is seeking an answer to the basic question:

When seeking to evaluate the financial soundness of the company prior to purchase,the buyer needs to examine several specific financial elements including:

A company's P/E ratio is:

It is important to develop a list of criteria that a potential business acquisition must meet.

It is important to remember when assessing the financial soundness of a company that:

To avoid a bumpy transition,a business buyer should do the following:

One way to get a mutually satisfying deal when negotiating is to recognize and try to meet the other party's need(s).

The process of gathering information about the company,valuing the company,and performing a detailed review of all records,agreements,and compliance is called:

When negotiating the deal,it is important to remember that the seller is looking for the best terms and to maintain some conduct with the company,at least for a while.

Which of the following statements about valuing a business is true?

What are the common motivations for a business to be for sale?

Most business buyers can expect to find detailed,accurate,and audited financial records in the companies they are looking at buying.

ESOPs:

Review the five key legal issues an entrepreneur needs to consider when evaluating an existing business.

When negotiating the deal,the most important thing to remember is:

What key questions need to be answered in the process of due diligence?

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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