Question 1

The process of investigating the details of a company that is for sale to determine the strengths,weaknesses,opportunities and threats facing it is known as the:

Accepted Answer

A) hidden market process. 
B) due diligence process. 
C) skimming process. 
D) business assessment process. 
A) hidden market process. 
B) due diligence process. 
C) skimming process. 
D) business assessment process. B

Question 2

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

Accepted Answer

A) the interest rate that could be earned on a similar risk investment. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing return of inflation. 
A) the interest rate that could be earned on a similar risk investment. 
B) the prime interest rate. 
C) the normal rate of return. 
D) the prevailing return of inflation. A

Question 3

When valuing inventory for a business sale,the most common methods used are:

Accepted Answer

A) first-in-first-out (FIFO)and last-in-first-out (LIFO). 
B) first-in-first-out (FIFO)and average costing. 
C) cost of last purchase and replacement value of inventory. 
D) cost of last purchase and average costing. 
A) first-in-first-out (FIFO)and last-in-first-out (LIFO). 
B) first-in-first-out (FIFO)and average costing. 
C) cost of last purchase and replacement value of inventory. 
D) cost of last purchase and average costing. C

Question 4

Next to picking the right buyer,planning the structure of a business sale is one of the most important decisions a seller can make.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following valuation techniques is best suited for determining the value of service businesses?

Accepted Answer

A) Discounted future earnings approach 
B) Balance sheet technique 
C) Adjusted balance sheet technique 
D) Excess earnings approach 
A) Discounted future earnings approach 
B) Balance sheet technique 
C) Adjusted balance sheet technique 
D) Excess earnings approach

Question 6

A business buyer can be held liable in product liability lawsuits for unsafe products that cause damage or injuries to customers even though they were made prior to the business purchase.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a potential disadvantage of purchasing an existing business?

Accepted Answer

A) The employees inherited with the business may not be suitable. 
B) The previous owner may have created ill will among the company's customers. 
C) Equipment and facilities may be obsolete or inefficient. 
D) All of the above 
A) The employees inherited with the business may not be suitable. 
B) The previous owner may have created ill will among the company's customers. 
C) Equipment and facilities may be obsolete or inefficient. 
D) All of the above

Question 8

FIFO,LIFO,and average costing are three frequently used techniques,but the most common methods use the cost of last purchase and the replacement value of the inventory.

Accepted Answer

A) True 
 B)False

Question 9

The due diligence process in analyzing and evaluating an existing business can be just as time consuming as the development of a comprehensive business plan for a start-up.

Accepted Answer

A) True 
 B)False

Question 10

An ESOP:

Accepted Answer

A) allows an owner to transfer all or part of his company to the employees as gradually or as quickly as he chooses. 
B) works best in companies where pre-tax profits exceed $100,000. 
C) is not beneficial to companies with fewer than 15 to 20 employees. 
D) All of the above 
A) allows an owner to transfer all or part of his company to the employees as gradually or as quickly as he chooses. 
B) works best in companies where pre-tax profits exceed $100,000. 
C) is not beneficial to companies with fewer than 15 to 20 employees. 
D) All of the above

Question 11

You have found two similar businesses whose stock is publicly traded on the OTC market.Their price-earnings ratios are 3.19 and 2.91.Using these two firms as a benchmark,what do you estimate the business to be worth using the market approach?

Accepted Answer

Average P/E ratio =

Question 12

Advantages to buying an existing business that you do not have with a startup include:

Accepted Answer

A) greater access to venture capital. 
B) the opportunity to participate in a national advertising campaign. 
C) inventory is in place and trade credit is established. 
D) easy implementation of innovations and changes from past policies. 
A) greater access to venture capital. 
B) the opportunity to participate in a national advertising campaign. 
C) inventory is in place and trade credit is established. 
D) easy implementation of innovations and changes from past policies.

Question 13

Which of the following is a disadvantage of the market approach to valuing a business?

Accepted Answer

A) Necessary comparisons between publicly traded and privately owned companies 
B) Unrepresentative earnings estimates 
C) Difficulty in finding similar companies for comparison 
D) All of the above 
A) Necessary comparisons between publicly traded and privately owned companies 
B) Unrepresentative earnings estimates 
C) Difficulty in finding similar companies for comparison 
D) All of the above

Question 14

When evaluating a business as a potential candidate for purchase,an entrepreneur should determine the real reason the current owner wants to sell.

Accepted Answer

A) True 
 B)False

Question 15

Identify five questions that influence the negotiation process between a business buyer and a seller?

Accepted Answer

• How strong is the seller's desire to s

Question 16

Based on the capitalized earnings method,what do you calculate the business to be worth?

Accepted Answer

The answer of Based on the capitalized earnings method,what do...

Question 17

Ralph buys a software business from Waldo in Columbus,Ohio.As part of the deal,Waldo signs a covenant not to compete by opening another software business anywhere in Ohio for the rest of his life.Such a covenant would be enforceable.

Accepted Answer

A) True 
 B)False

Question 18

Some buyers may assume that if profits are adequate,there will be sufficient cash to pay all of the bills and fund an attractive salary for themselves,but that is not necessarily the case.

Accepted Answer

A) True 
 B)False

Question 19

If a business has a lien against any of its assets at the time of the sale,the buyer must assume them and is financially responsible for them.

Accepted Answer

A) True 
 B)False

Question 20

Your friend Susan is considering purchasing an existing business.How would you explain to her what due diligence is,why it is important,and the critical areas of it?

Accepted Answer

The due diligence process in analyzing a

The process of investigating the details of a company that is for sale to determine the strengths,weaknesses,opportunities and threats facing it is known as the:

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

When valuing inventory for a business sale,the most common methods used are:

Next to picking the right buyer,planning the structure of a business sale is one of the most important decisions a seller can make.

Which of the following valuation techniques is best suited for determining the value of service businesses?

A business buyer can be held liable in product liability lawsuits for unsafe products that cause damage or injuries to customers even though they were made prior to the business purchase.

Which of the following is a potential disadvantage of purchasing an existing business?

FIFO,LIFO,and average costing are three frequently used techniques,but the most common methods use the cost of last purchase and the replacement value of the inventory.

The due diligence process in analyzing and evaluating an existing business can be just as time consuming as the development of a comprehensive business plan for a start-up.

An ESOP:

You have found two similar businesses whose stock is publicly traded on the OTC market.Their price-earnings ratios are 3.19 and 2.91.Using these two firms as a benchmark,what do you estimate the business to be worth using the market approach?

Advantages to buying an existing business that you do not have with a startup include:

Which of the following is a disadvantage of the market approach to valuing a business?

When evaluating a business as a potential candidate for purchase,an entrepreneur should determine the real reason the current owner wants to sell.

Identify five questions that influence the negotiation process between a business buyer and a seller?

Based on the capitalized earnings method,what do you calculate the business to be worth?

Ralph buys a software business from Waldo in Columbus,Ohio.As part of the deal,Waldo signs a covenant not to compete by opening another software business anywhere in Ohio for the rest of his life.Such a covenant would be enforceable.

Some buyers may assume that if profits are adequate,there will be sufficient cash to pay all of the bills and fund an attractive salary for themselves,but that is not necessarily the case.

If a business has a lien against any of its assets at the time of the sale,the buyer must assume them and is financially responsible for them.

Your friend Susan is considering purchasing an existing business.How would you explain to her what due diligence is,why it is important,and the critical areas of it?

The Foundations of Entrepreneurship

Inside the Entrepreneurial Mind: From Ideas to Reality

Designing a Competitive Business Model and Building a Solid Strategic Plan

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Forms of Business Ownership

Franchising and the Entrepreneur

Building a Powerful Marketing Plan

E-Commerce and the Entrepreneur

Pricing Strategies

Creating a Successful Financial Plan

Managing Cash Flow

Sources of Financing: Debt and Equity

Choosing the Right Location and Layout

Global Opportunities

Building a Team and Management Succession

Filters

Exam 7: Buying an Existing Business

The process of investigating the details of a company that is for sale to determine the strengths,weaknesses,opportunities and threats facing it is known as the:

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

When valuing inventory for a business sale,the most common methods used are:

Next to picking the right buyer,planning the structure of a business sale is one of the most important decisions a seller can make.

Which of the following valuation techniques is best suited for determining the value of service businesses?

A business buyer can be held liable in product liability lawsuits for unsafe products that cause damage or injuries to customers even though they were made prior to the business purchase.

Which of the following is a potential disadvantage of purchasing an existing business?

FIFO,LIFO,and average costing are three frequently used techniques,but the most common methods use the cost of last purchase and the replacement value of the inventory.

The due diligence process in analyzing and evaluating an existing business can be just as time consuming as the development of a comprehensive business plan for a start-up.

An ESOP:

You have found two similar businesses whose stock is publicly traded on the OTC market.Their price-earnings ratios are 3.19 and 2.91.Using these two firms as a benchmark,what do you estimate the business to be worth using the market approach?

Advantages to buying an existing business that you do not have with a startup include:

Which of the following is a disadvantage of the market approach to valuing a business?

When evaluating a business as a potential candidate for purchase,an entrepreneur should determine the real reason the current owner wants to sell.

Identify five questions that influence the negotiation process between a business buyer and a seller?

Based on the capitalized earnings method,what do you calculate the business to be worth?

Ralph buys a software business from Waldo in Columbus,Ohio.As part of the deal,Waldo signs a covenant not to compete by opening another software business anywhere in Ohio for the rest of his life.Such a covenant would be enforceable.

Some buyers may assume that if profits are adequate,there will be sufficient cash to pay all of the bills and fund an attractive salary for themselves,but that is not necessarily the case.

If a business has a lien against any of its assets at the time of the sale,the buyer must assume them and is financially responsible for them.

Your friend Susan is considering purchasing an existing business.How would you explain to her what due diligence is,why it is important,and the critical areas of it?

The Foundations of Entrepreneurship

Inside the Entrepreneurial Mind: From Ideas to Reality

Designing a Competitive Business Model and Building a Solid Strategic Plan

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Forms of Business Ownership

Franchising and the Entrepreneur

Building a Powerful Marketing Plan

E-Commerce and the Entrepreneur

Pricing Strategies

Creating a Successful Financial Plan

Managing Cash Flow

Sources of Financing: Debt and Equity

Choosing the Right Location and Layout

Global Opportunities

Building a Team and Management Succession

Filters