Exam 7: Buying an Existing Business

A valuation method that is more realistic than the balance sheet technique because it adjusts book value to reflect actual market value is the:

Which of the following statements concerning financing the purchase of an existing business is not true?

The first step an entrepreneur should take when buying an existing business is to:

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

Explain what the buyer and the seller of a business are each looking for in the negotiation process.

The practice of taking money from sales without reporting it as income is called sliding.

If the corporation,rather than the business seller,signs a restrictive covenant,the seller may not be bound by its terms.

Using the excess earnings method,what is the company's "goodwill"?

Financing the purchase of an existing business usually is easier than financing the startup of a new one.

In the global marketplace,companies from Canada and Great Britain lead the world in acquiring U.S.companies,but China is moving up the list.

The three main sources of potential legal liabilities for the buyer of an existing business include all but which of the following?

By meeting the criteria of a bulk transfer,a business buyer acquires free and clear title to the assets purchased,which are not subject to prior claims from the seller's creditors.

A letter of intent is a nonbinding document stating that a business buyer and a seller have reached a sufficient "meeting of the minds" to justify the time and the expense of negotiating a final agreement.

Many business owners show low profits in their businesses intentionally to lower their tax bills.

The most common reasons owners of small- and medium-sized businesses give for selling their businesses are:

Perhaps the ideal source of financing the purchase of an existing business is:

Which of the following is considered an opportunity cost of buying an existing business?

The rate of return used to value a business is composed of the basic,risk-free return,an inflation premium,and the risk allowance for investing in the particular business.

According to the discounted future earnings technique,a dollar earned in the future is worth more than a dollar earned today.

One way for a business buyer to avoid being surprised by liens against the assets purchased is to include a clause in the sales contract stating that any liability not shown on the balance sheet at the time of the sale remains the responsibility of the seller.