Question 1

Goodwill is the difference between an established successful business and one that has yet to prove itself.

Accepted Answer

A) True 
 B)False

Question 2

A(n)________ allows owners to "cash out" by selling their companies to their employees as gradually or as quickly as they choose.

Accepted Answer

A) two-step sale 
B) controlled sale 
C) company restructuring 
D) ESOP 
A) two-step sale 
B) controlled sale 
C) company restructuring 
D) ESOP

Question 3

Laurette has entered into a contract with Jackson to purchase his retail music shop.Jackson's lease on the existing building (which is in an excellent location)has five years remaining.If Laurette wants the lease to be part of the business sale:

Accepted Answer

A) she should include a clause in the sales contract in which Jackson agrees to assign to her his rights and obligations under that lease. 
B) she should notify the landlord of Jackson's assignment of the lease agreement to her. 
C) A and B are correct. 
D) None of the above.Because Jackson does not actually own the building,he can transfer no rights to it to Laurette. 
A) she should include a clause in the sales contract in which Jackson agrees to assign to her his rights and obligations under that lease. 
B) she should notify the landlord of Jackson's assignment of the lease agreement to her. 
C) A and B are correct. 
D) None of the above.Because Jackson does not actually own the building,he can transfer no rights to it to Laurette.

Question 4

A disadvantage of the market approach to valuing a business is the difficulty of finding similar companies for comparison.

Accepted Answer

A) True 
 B)False

Question 5

Based on the balance sheet method,what do you calculate the business to be worth?

Accepted Answer

The answer of Based on the balance sheet method,what do...

Question 6

The hidden market of companies -- those companies that might be for sale and are not advertised is one of the richest sources of top -- quality businesses to purchase.

Accepted Answer

A) True 
 B)False

Question 7

Before purchasing an existing business,an entrepreneur should analyze both its existing and its potential customers.

Accepted Answer

A) True 
 B)False

Question 8

Neither the balance sheet method nor the adjusted balance sheet method of valuing a business considers the future earning power of the business.

Accepted Answer

A) True 
 B)False

Question 9

Assessing the opportunity cost associated with the decision is not a valuable consideration when deciding to purchase a business.

Accepted Answer

A) True 
 B)False

Question 10

The balance sheet technique is one of the most commonly used methods of evaluating an existing business,although it oversimplifies the valuation process because it values a company only on the basis of its net worth.

Accepted Answer

A) True 
 B)False

Question 11

A principal advantage of buying an existing business is the purchaser's ability to rely on the previous owner's experience.

Accepted Answer

A) True 
 B)False

Question 12

An entrepreneur should never purchase a business that is losing money.

Accepted Answer

A) True 
 B)False

Question 13

In the earnings methods of business valuation,the rate of return associated with a "normal risk" business is:

Accepted Answer

A) 15 percent. 
B) 25 percent. 
C) 35 percent. 
D) 50 percent. 
A) 15 percent. 
B) 25 percent. 
C) 35 percent. 
D) 50 percent.

Question 14

When buying a business,an entrepreneur can usually purchase equipment and fixtures at prices well below their book value.

Accepted Answer

A) True 
 B)False

Question 15

The business acquisition process should begin with the search for potential companies to acquire.

Accepted Answer

A) True 
 B)False

Question 16

Some business brokers differentiate between the types of buyers: ________ buyers see buying a business as a way to generate income and ________ buyers view the purchase as part of a larger picture to offer a long-term advantage.

Accepted Answer

A) strategic; financial 
B) financial; strategic 
C) strategic; optimistic 
D) financial; passive 
A) strategic; financial 
B) financial; strategic 
C) strategic; optimistic 
D) financial; passive

Question 17

During the acquisition process,the buyer and the seller sign a ________,which spells out the parties' final deal and represents the details of the agreement that are the result of the negotiation process.

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 18

The ________ approach to valuing a business uses the price-earnings ratios of similar businesses to establish the value of a company.

Accepted Answer

A) balance sheet 
B) capitalized earnings 
C) discounted future earnings 
D) market 
A) balance sheet 
B) capitalized earnings 
C) discounted future earnings 
D) market

Question 19

Under the capitalized earnings approach to valuing an existing business,most normal-risk businesses use a rate-of-return factor ranging from 25 to 30 percent.

Accepted Answer

A) True 
 B)False

Question 20

The main reason a buyer purchases an existing business is for:

Accepted Answer

A) its future income and profits for earning potential. 
B) its customer base and access to those customers. 
C) its tangible assets and the ability to liquidate those assets. 
D) its goodwill. 
A) its future income and profits for earning potential. 
B) its customer base and access to those customers. 
C) its tangible assets and the ability to liquidate those assets. 
D) its goodwill.

Goodwill is the difference between an established successful business and one that has yet to prove itself.

A(n)________ allows owners to "cash out" by selling their companies to their employees as gradually or as quickly as they choose.

Laurette has entered into a contract with Jackson to purchase his retail music shop.Jackson's lease on the existing building (which is in an excellent location)has five years remaining.If Laurette wants the lease to be part of the business sale:

A disadvantage of the market approach to valuing a business is the difficulty of finding similar companies for comparison.

Based on the balance sheet method,what do you calculate the business to be worth?

The hidden market of companies -- those companies that might be for sale and are not advertised is one of the richest sources of top -- quality businesses to purchase.

Before purchasing an existing business,an entrepreneur should analyze both its existing and its potential customers.

Neither the balance sheet method nor the adjusted balance sheet method of valuing a business considers the future earning power of the business.

Assessing the opportunity cost associated with the decision is not a valuable consideration when deciding to purchase a business.

The balance sheet technique is one of the most commonly used methods of evaluating an existing business,although it oversimplifies the valuation process because it values a company only on the basis of its net worth.

A principal advantage of buying an existing business is the purchaser's ability to rely on the previous owner's experience.

An entrepreneur should never purchase a business that is losing money.

In the earnings methods of business valuation,the rate of return associated with a "normal risk" business is:

When buying a business,an entrepreneur can usually purchase equipment and fixtures at prices well below their book value.

The business acquisition process should begin with the search for potential companies to acquire.

Some business brokers differentiate between the types of buyers: buyers see buying a business as a way to generate income and buyers view the purchase as part of a larger picture to offer a long-term advantage.

During the acquisition process,the buyer and the seller sign a ________,which spells out the parties' final deal and represents the details of the agreement that are the result of the negotiation process.

The ________ approach to valuing a business uses the price-earnings ratios of similar businesses to establish the value of a company.

Under the capitalized earnings approach to valuing an existing business,most normal-risk businesses use a rate-of-return factor ranging from 25 to 30 percent.

The main reason a buyer purchases an existing business is for:

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

Goodwill is the difference between an established successful business and one that has yet to prove itself.

A(n)________ allows owners to "cash out" by selling their companies to their employees as gradually or as quickly as they choose.

Laurette has entered into a contract with Jackson to purchase his retail music shop.Jackson's lease on the existing building (which is in an excellent location)has five years remaining.If Laurette wants the lease to be part of the business sale:

A disadvantage of the market approach to valuing a business is the difficulty of finding similar companies for comparison.

Based on the balance sheet method,what do you calculate the business to be worth?

The hidden market of companies -- those companies that might be for sale and are not advertised is one of the richest sources of top -- quality businesses to purchase.

Before purchasing an existing business,an entrepreneur should analyze both its existing and its potential customers.

Neither the balance sheet method nor the adjusted balance sheet method of valuing a business considers the future earning power of the business.

Assessing the opportunity cost associated with the decision is not a valuable consideration when deciding to purchase a business.

The balance sheet technique is one of the most commonly used methods of evaluating an existing business,although it oversimplifies the valuation process because it values a company only on the basis of its net worth.

A principal advantage of buying an existing business is the purchaser's ability to rely on the previous owner's experience.

An entrepreneur should never purchase a business that is losing money.

In the earnings methods of business valuation,the rate of return associated with a "normal risk" business is:

When buying a business,an entrepreneur can usually purchase equipment and fixtures at prices well below their book value.

The business acquisition process should begin with the search for potential companies to acquire.

Some business brokers differentiate between the types of buyers: ________ buyers see buying a business as a way to generate income and ________ buyers view the purchase as part of a larger picture to offer a long-term advantage.

During the acquisition process,the buyer and the seller sign a ________,which spells out the parties' final deal and represents the details of the agreement that are the result of the negotiation process.

The ________ approach to valuing a business uses the price-earnings ratios of similar businesses to establish the value of a company.

Under the capitalized earnings approach to valuing an existing business,most normal-risk businesses use a rate-of-return factor ranging from 25 to 30 percent.

The main reason a buyer purchases an existing business is for:

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

Some business brokers differentiate between the types of buyers: buyers see buying a business as a way to generate income and buyers view the purchase as part of a larger picture to offer a long-term advantage.