Question 1

In a business sale,a letter of intent:

Accepted Answer

A) states that the buyer and the seller have reached a sufficient meeting of the minds to justify the time and expense of negotiating a final agreement. 
B) should contain a clause calling for "good faith negotiations" between the parties. 
C) addresses such issues as price,payment terms,a deadline for closing the deal,and others. 
D) All of the above 
A) states that the buyer and the seller have reached a sufficient meeting of the minds to justify the time and expense of negotiating a final agreement. 
B) should contain a clause calling for "good faith negotiations" between the parties. 
C) addresses such issues as price,payment terms,a deadline for closing the deal,and others. 
D) All of the above

Question 2

When a buyer purchases an existing business,she may "inherit" liability for damages and injuries caused by products the company has manufactured or sold in the past.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a criterion for a bulk transfer?

Accepted Answer

A) The seller must give the buyer a signed,sworn list of existing creditors. 
B) The buyer and the seller must prepare a list of the property included in the sale. 
C) The buyer must give notice of the sale to each creditor at least ten days before he takes possession of the goods or pays for them. 
D) All of the above 
A) The seller must give the buyer a signed,sworn list of existing creditors. 
B) The buyer and the seller must prepare a list of the property included in the sale. 
C) The buyer must give notice of the sale to each creditor at least ten days before he takes possession of the goods or pays for them. 
D) All of the above

Question 4

Given the following earnings estimates,compute the value of the business.

Accepted Answer

Number of Years Pessimistic Most Likely

Question 5

When evaluating the assets of an existing business,the inventory:

Accepted Answer

A) is always current and salable. 
B) usually appreciates over time,making the business a bargain. 
C) should be judged on the basis of its market value,not its book value. 
D) is usually stated honestly and does not need an independent audit. 
A) is always current and salable. 
B) usually appreciates over time,making the business a bargain. 
C) should be judged on the basis of its market value,not its book value. 
D) is usually stated honestly and does not need an independent audit.

Question 6

An earn-out is an exit strategy in which an entrepreneur can increase his or her payout by actively participating in the business to make sure the company hits specific performance targets.

Accepted Answer

A) True 
 B)False

Question 7

The best method for determining a business's worth is the discounted future earnings approach.

Accepted Answer

A) True 
 B)False

Question 8

When done correctly,the due diligence process will:

Accepted Answer

A) reveal both the positive and negative aspects of an existing business. 
B) be time consuming and expensive. 
C) most often result in the purchase of the business. 
D) rarely prove to be beneficial. 
A) reveal both the positive and negative aspects of an existing business. 
B) be time consuming and expensive. 
C) most often result in the purchase of the business. 
D) rarely prove to be beneficial.

Question 9

A restrictive covenant prohibits the seller of an existing business from opening a competitive business within a specific time period and geographic area of the existing one.

Accepted Answer

A) True 
 B)False

Question 10

Given the following earnings estimates,compute the value of the business using the discounted future earnings technique.

Accepted Answer

Number of Years Pessimistic Most Likely

Question 11

Explain five strategies business owners can use to exit their businesses.Cite a specific advantage of each.

Accepted Answer

• Straight business sale - facilitating

Question 12

Which of the following strategies would not be suitable for an entrepreneur who wants to surrender control of the company gradually?

Accepted Answer

A) Forming a family limited partnership 
B) Restructuring the company 
C) Straight business sale 
D) Using a two-step sale 
A) Forming a family limited partnership 
B) Restructuring the company 
C) Straight business sale 
D) Using a two-step sale

Question 13

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) None of the above 
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) None of the above

Question 14

To use an ESOP successfully,a company should have pre-tax profits of at least $100,000 and a payroll exceeding $500,000 a year.

Accepted Answer

A) True 
 B)False

Question 15

A business buyer should build his or her own pro forma income statement from an existing firm's accounting records and compare it to the same statement provided by the owner.

Accepted Answer

A) True 
 B)False

Question 16

Briefly summarize the mechanics of each of the methods for valuing an existing business: balance sheet technique,adjusted balance sheet technique,excess earnings method,capitalized earnings method,discounted future earnings method,and the market approach.

Accepted Answer

• Balance sheet technique: Book value of

Question 17

The most meaningful method of determining the value of an existing business's inventory is its book value.

Accepted Answer

A) True 
 B)False

Question 18

A creditor's claim against an asset is referred to as lien.

Accepted Answer

A) True 
 B)False

Question 19

Skimming is the act of taking money from sales without reporting it as income and it is an illegal and unethical practice.

Accepted Answer

A) True 
 B)False

Question 20

A nondisclosure document is an agreement between a business buyer and a seller that requires the buyer to maintain strict confidentiality of all records,documents,and information he receives during the parties' negotiations.

Accepted Answer

A) True 
 B)False

In a business sale,a letter of intent:

When a buyer purchases an existing business,she may "inherit" liability for damages and injuries caused by products the company has manufactured or sold in the past.

Which of the following is a criterion for a bulk transfer?

Given the following earnings estimates,compute the value of the business.

When evaluating the assets of an existing business,the inventory:

An earn-out is an exit strategy in which an entrepreneur can increase his or her payout by actively participating in the business to make sure the company hits specific performance targets.

The best method for determining a business's worth is the discounted future earnings approach.

When done correctly,the due diligence process will:

A restrictive covenant prohibits the seller of an existing business from opening a competitive business within a specific time period and geographic area of the existing one.

Given the following earnings estimates,compute the value of the business using the discounted future earnings technique.

Explain five strategies business owners can use to exit their businesses.Cite a specific advantage of each.

Which of the following strategies would not be suitable for an entrepreneur who wants to surrender control of the company gradually?

A company's P/E ratio is:

To use an ESOP successfully,a company should have pre-tax profits of at least $100,000 and a payroll exceeding $500,000 a year.

A business buyer should build his or her own pro forma income statement from an existing firm's accounting records and compare it to the same statement provided by the owner.

Briefly summarize the mechanics of each of the methods for valuing an existing business: balance sheet technique,adjusted balance sheet technique,excess earnings method,capitalized earnings method,discounted future earnings method,and the market approach.

The most meaningful method of determining the value of an existing business's inventory is its book value.

A creditor's claim against an asset is referred to as lien.

Skimming is the act of taking money from sales without reporting it as income and it is an illegal and unethical practice.

A nondisclosure document is an agreement between a business buyer and a seller that requires the buyer to maintain strict confidentiality of all records,documents,and information he receives during the parties' negotiations.

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

In a business sale,a letter of intent:

When a buyer purchases an existing business,she may "inherit" liability for damages and injuries caused by products the company has manufactured or sold in the past.

Which of the following is a criterion for a bulk transfer?

Given the following earnings estimates,compute the value of the business.

When evaluating the assets of an existing business,the inventory:

An earn-out is an exit strategy in which an entrepreneur can increase his or her payout by actively participating in the business to make sure the company hits specific performance targets.

The best method for determining a business's worth is the discounted future earnings approach.

When done correctly,the due diligence process will:

A restrictive covenant prohibits the seller of an existing business from opening a competitive business within a specific time period and geographic area of the existing one.

Given the following earnings estimates,compute the value of the business using the discounted future earnings technique.

Explain five strategies business owners can use to exit their businesses.Cite a specific advantage of each.

Which of the following strategies would not be suitable for an entrepreneur who wants to surrender control of the company gradually?

A company's P/E ratio is:

To use an ESOP successfully,a company should have pre-tax profits of at least $100,000 and a payroll exceeding $500,000 a year.

A business buyer should build his or her own pro forma income statement from an existing firm's accounting records and compare it to the same statement provided by the owner.

Briefly summarize the mechanics of each of the methods for valuing an existing business: balance sheet technique,adjusted balance sheet technique,excess earnings method,capitalized earnings method,discounted future earnings method,and the market approach.

The most meaningful method of determining the value of an existing business's inventory is its book value.

A creditor's claim against an asset is referred to as lien.

Skimming is the act of taking money from sales without reporting it as income and it is an illegal and unethical practice.

A nondisclosure document is an agreement between a business buyer and a seller that requires the buyer to maintain strict confidentiality of all records,documents,and information he receives during the parties' negotiations.

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