Question 1

When evaluating the financial position of a business he or she is considering buying,an entrepreneur should examine:

Accepted Answer

A) its income statements and balance sheets from the past three to five years. 
B) its income tax returns for the past three to five years. 
C) the owner's compensation and that of relatives. 
D) All of the above 
A) its income statements and balance sheets from the past three to five years. 
B) its income tax returns for the past three to five years. 
C) the owner's compensation and that of relatives. 
D) All of the above

Question 2

To ensure a smooth transition when buying an existing business,a buyer should:

Accepted Answer

A) communicate with employees to reduce their uncertainty and anxiety. 
B) be honest with existing employees about upcoming changes and plans for the company's future. 
C) consider asking the seller to stay on and serve as a consultant until the transition is complete. 
D) All of the above 
A) communicate with employees to reduce their uncertainty and anxiety. 
B) be honest with existing employees about upcoming changes and plans for the company's future. 
C) consider asking the seller to stay on and serve as a consultant until the transition is complete. 
D) All of the above

Question 3

A due-on-sale clause allows an entrepreneur buying a business to "assume" the seller's loan (usually at a lower interest rate).

Accepted Answer

A) True 
 B)False

Question 4

Business valuations based on balance sheet methods suffer certain disadvantages,including:

Accepted Answer

A) they are extremely complex and are difficult to calculate. 
B) they do not consider the future earning potential of the business. 
C) they fail to take into account what is usually the largest asset a company owns: inventory. 
D) All of the above 
A) they are extremely complex and are difficult to calculate. 
B) they do not consider the future earning potential of the business. 
C) they fail to take into account what is usually the largest asset a company owns: inventory. 
D) All of the above

Question 5

During the acquisition process,the potential buyer usually must sign a ________,which is an agreement to keep all conversations and information secret and legally binds the buyer from telling anyone any information the seller shares with her.

Accepted Answer

A) covenant not to compete 
B) nondisclosure document 
C) letter of intent 
D) purchase agreement 
A) covenant not to compete 
B) nondisclosure document 
C) letter of intent 
D) purchase agreement

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000,its capitalized value would be:

Accepted Answer

A) $5,400. 
B) $32,400. 
C) $135,000. 
D) $540,000. 
A) $5,400. 
B) $32,400. 
C) $135,000. 
D) $540,000.

Question 8

For a new owner of an existing business,physical facilities and equipment costs are very similar to what would have been spent on a startup with all new facilities and equipment.

Accepted Answer

A) True 
 B)False

Question 9

The most common reasons that owners of small businesses give for selling are the intensity of competition and an inability to raise sufficient cash to continue to grow.

Accepted Answer

A) True 
 B)False

Question 10

A toy manufacturer is sued based on the claim of injuries caused by a product it makes.This is an example of a:

Accepted Answer

A) product liability lawsuit. 
B) promissory estoppel lawsuit. 
C) restrictive covenant lawsuit. 
D) contingent liability lawsuit. 
A) product liability lawsuit. 
B) promissory estoppel lawsuit. 
C) restrictive covenant lawsuit. 
D) contingent liability lawsuit.

Question 11

Based on the excess earnings approach,what do you calculate the business to be worth?

Accepted Answer

Adjustable tangible net worth $175,000 O

Question 12

Which method of business valuation relies on three forecasts of future earnings: optimistic,pessimistic,and most likely?

Accepted Answer

A) Balance sheet technique 
B) Excess-earnings method 
C) Discounted future earnings 
D) Market approach 
A) Balance sheet technique 
B) Excess-earnings method 
C) Discounted future earnings 
D) Market approach

Question 13

The due diligence process of analyzing and evaluating an existing business:

Accepted Answer

A) may be just as time consuming as the development of a comprehensive business plan for a start-up. 
B) helps to determine if the company will generate sufficient cash to pay for itself and leave you with a suitable rate of return on your investment. 
C) helps to determine what the company's potential for success is. 
D) All of the above 
A) may be just as time consuming as the development of a comprehensive business plan for a start-up. 
B) helps to determine if the company will generate sufficient cash to pay for itself and leave you with a suitable rate of return on your investment. 
C) helps to determine what the company's potential for success is. 
D) All of the above

Question 14

Generally,a seller of an existing business can assign any contractual right to the buyer unless:

Accepted Answer

A) the contract specifically prohibits the assignment. 
B) the contract is personal in nature. 
C) A and B are correct. 
D) None of the above.Business sellers typically cannot assign any contractual rights to buyers. 
A) the contract specifically prohibits the assignment. 
B) the contract is personal in nature. 
C) A and B are correct. 
D) None of the above.Business sellers typically cannot assign any contractual rights to buyers.

Question 15

Which of the following is required for the covenant not to compete to be enforceable?

Accepted Answer

A) Part of a business sale and reasonable in scope 
B) Approved by a court of law and reasonable in scope 
C) The assistance of an attorney and approved by a court of law 
D) The registration of the due-on-sale agreement 
A) Part of a business sale and reasonable in scope 
B) Approved by a court of law and reasonable in scope 
C) The assistance of an attorney and approved by a court of law 
D) The registration of the due-on-sale agreement

Question 16

How much would you offer the present owner at the beginning of the negotiation process?

Accepted Answer

Students' responses will be di

Question 17

Important factors to investigate regarding the business to be purchased include:

Accepted Answer

A) assessing the physical assets of the business. 
B) reviewing accounts receivable and business records. 
C) reviewing contractual arrangements and assessing intangible assets. 
D) All of the above 
A) assessing the physical assets of the business. 
B) reviewing accounts receivable and business records. 
C) reviewing contractual arrangements and assessing intangible assets. 
D) All of the above

Question 18

The reason an entrepreneur should conduct a self-audit of his or her skills,abilities,and interests is to help focus on those businesses that will best "fit."

Accepted Answer

A) True 
 B)False

Question 19

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 the seller's industry expertise and years of experience to determine what his company is worth. 
D) Business valuation processes are consistently misleading regarding the future earning potential of a business. 
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 the seller's industry expertise and years of experience to determine what his company is worth. 
D) Business valuation processes are consistently misleading regarding the future earning potential of a business.

Question 20

Is there a "best method" for determining the value of a business? Why? How should a prospective buyer go about establishing the value of a business?

Accepted Answer

No,there is no "best" business valuation

When evaluating the financial position of a business he or she is considering buying,an entrepreneur should examine:

To ensure a smooth transition when buying an existing business,a buyer should:

A due-on-sale clause allows an entrepreneur buying a business to "assume" the seller's loan (usually at a lower interest rate).

Business valuations based on balance sheet methods suffer certain disadvantages,including:

During the acquisition process,the potential buyer usually must sign a ________,which is an agreement to keep all conversations and information secret and legally binds the buyer from telling anyone any information the seller shares with her.

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

If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000,its capitalized value would be:

For a new owner of an existing business,physical facilities and equipment costs are very similar to what would have been spent on a startup with all new facilities and equipment.

The most common reasons that owners of small businesses give for selling are the intensity of competition and an inability to raise sufficient cash to continue to grow.

A toy manufacturer is sued based on the claim of injuries caused by a product it makes.This is an example of a:

Based on the excess earnings approach,what do you calculate the business to be worth?

Which method of business valuation relies on three forecasts of future earnings: optimistic,pessimistic,and most likely?

The due diligence process of analyzing and evaluating an existing business:

Generally,a seller of an existing business can assign any contractual right to the buyer unless:

Which of the following is required for the covenant not to compete to be enforceable?

How much would you offer the present owner at the beginning of the negotiation process?

Important factors to investigate regarding the business to be purchased include:

The reason an entrepreneur should conduct a self-audit of his or her skills,abilities,and interests is to help focus on those businesses that will best "fit."

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

Is there a "best method" for determining the value of a business? Why? How should a prospective buyer go about establishing the value of a business?

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

When evaluating the financial position of a business he or she is considering buying,an entrepreneur should examine:

To ensure a smooth transition when buying an existing business,a buyer should:

A due-on-sale clause allows an entrepreneur buying a business to "assume" the seller's loan (usually at a lower interest rate).

Business valuations based on balance sheet methods suffer certain disadvantages,including:

During the acquisition process,the potential buyer usually must sign a ________,which is an agreement to keep all conversations and information secret and legally binds the buyer from telling anyone any information the seller shares with her.

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

If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000,its capitalized value would be:

For a new owner of an existing business,physical facilities and equipment costs are very similar to what would have been spent on a startup with all new facilities and equipment.

The most common reasons that owners of small businesses give for selling are the intensity of competition and an inability to raise sufficient cash to continue to grow.

A toy manufacturer is sued based on the claim of injuries caused by a product it makes.This is an example of a:

Based on the excess earnings approach,what do you calculate the business to be worth?

Which method of business valuation relies on three forecasts of future earnings: optimistic,pessimistic,and most likely?

The due diligence process of analyzing and evaluating an existing business:

Generally,a seller of an existing business can assign any contractual right to the buyer unless:

Which of the following is required for the covenant not to compete to be enforceable?

How much would you offer the present owner at the beginning of the negotiation process?

Important factors to investigate regarding the business to be purchased include:

The reason an entrepreneur should conduct a self-audit of his or her skills,abilities,and interests is to help focus on those businesses that will best "fit."

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

Is there a "best method" for determining the value of a business? Why? How should a prospective buyer go about establishing the value of a business?

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