Question 1

If you want to buy a business that is growing rapidly, what is the best valuation method to use to determine a fair price for it?

Accepted Answer

A)  Future earnings method 
B)  Book value method 
C)  Market-based approach 
D)  Comparison approach 
E)  Intuitive method 
A)  Future earnings method 
B)  Book value method 
C)  Market-based approach 
D)  Comparison approach 
E)  Intuitive method

Question 2

An employee stock ownership plan (ESOP) provides an employee retirement plan and allows the entrepreneur and partners to sell their stock and exit the company.

Accepted Answer

A) True 
 B)False

Question 3

Which business is an example of a franchise?

Accepted Answer

A)  Burger King 
B)  Walmart 
C)  Sears 
D)  Federal Express 
E)  U.S. Postal Service 
A)  Burger King 
B)  Walmart 
C)  Sears 
D)  Federal Express 
E)  U.S. Postal Service

Question 4

Harvesting options include ________.

Accepted Answer

A)  An IPO 
B)  Increasing cash flows and a management buyout 
C)  Merging 
D)  Being acquired 
E)  All of the above 
A)  An IPO 
B)  Increasing cash flows and a management buyout 
C)  Merging 
D)  Being acquired 
E)  All of the above

Question 5

Book value is one of the most common methods for computing a company's valuation.

Accepted Answer

A) True 
 B)False

Question 6

Why are franchisees typically assigned territories?

Accepted Answer

A)  So that they are not placed in direct competition with other franchises from the same company 
B)  To avoid conflict with franchises from different companies 
C)  So they can be assigned to managers 
D)  All of the above 
E)  None of the above 
A)  So that they are not placed in direct competition with other franchises from the same company 
B)  To avoid conflict with franchises from different companies 
C)  So they can be assigned to managers 
D)  All of the above 
E)  None of the above

Question 7

A way to replicate a business formula is through selling.

Accepted Answer

A) True 
 B)False

Question 8

________, or spreading out the brand among many products and product lines, can increase market share, but it/they can also ________ the company.

Accepted Answer

A)  Diversification, unfocus 
B)  Diversification, focus 
C)  Product line extension, focus 
D)  Alliances, focus 
E)  Alliances, concentrate 
A)  Diversification, unfocus 
B)  Diversification, focus 
C)  Product line extension, focus 
D)  Alliances, focus 
E)  Alliances, concentrate

Question 9

The harvest or exit strategies set out in a business's plan are important not only to the entrepreneur but also to ________.

Accepted Answer

A)  Investors 
B)  Customers 
C)  The IRS 
D)  The state 
E)  The church 
A)  Investors 
B)  Customers 
C)  The IRS 
D)  The state 
E)  The church

Question 10

When an entrepreneur sells his or her company to its managers, this exit strategy is called ________.

Accepted Answer

A)  A management buyout 
B)  A management takeover 
C)  An acquisition 
D)  A merger 
E)  A hostile takeover 
A)  A management buyout 
B)  A management takeover 
C)  An acquisition 
D)  A merger 
E)  A hostile takeover

Question 11

Ways to value a business include comparison to other firms, benchmarking, or looking at a multiple of net earnings. Any of the methods is an attempt to arrive at a ________.

Accepted Answer

A)  Fair market value 
B)  Future value 
C)  Most profitable price 
D)  Net present value 
E)  Gross profit 
A)  Fair market value 
B)  Future value 
C)  Most profitable price 
D)  Net present value 
E)  Gross profit

Question 12

Why is it not a good idea to tell investors in your business plan that your exit strategy is simply "to take the business public"?

Accepted Answer

Simply claiming that your business will

Question 13

A license is ________.

Accepted Answer

A)  The right to use a name or image on a product 
B)  The right to sell knockoffs of a product 
C)  The right to sell duplicates of a product 
D)  The right to start a business and run it exactly as the licensor wants it run 
E)  The same as a franchise 
A)  The right to use a name or image on a product 
B)  The right to sell knockoffs of a product 
C)  The right to sell duplicates of a product 
D)  The right to start a business and run it exactly as the licensor wants it run 
E)  The same as a franchise

Question 14

If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would you earn in royalties?

Accepted Answer

A)  $350,000 
B)  $450,000 
C)  $550,000 
D)  $650,000 
E)  $250,000 
A)  $350,000 
B)  $450,000 
C)  $550,000 
D)  $650,000 
E)  $250,000

Question 15

A disadvantage of harvesting cash over time as an exit strategy is ________.

Accepted Answer

A)  It can take a long time to complete 
B)  The owner doesn't have to look for a buyer 
C)  The managers find out what the company is really worth 
D)  You might get less money 
E)  All of the above 
A)  It can take a long time to complete 
B)  The owner doesn't have to look for a buyer 
C)  The managers find out what the company is really worth 
D)  You might get less money 
E)  All of the above

Question 16

The franchisor owns the restaurant and agrees to market the food under the McDonalds name and trademark in the exact fashion developed by Kroc.

Accepted Answer

A) True 
 B)False

Question 17

Explain growth by diversification.

Accepted Answer

Diversification is the additio

Question 18

Merging or being acquired ________.

Accepted Answer

A)  Can be an emotionally draining experience and take over a year 
B)  Is typically a quick and emotionless process 
C)  Is typically concluded within a few weeks 
D)  All of the above 
E)  None of the above 
A)  Can be an emotionally draining experience and take over a year 
B)  Is typically a quick and emotionless process 
C)  Is typically concluded within a few weeks 
D)  All of the above 
E)  None of the above

Question 19

Diversification is the addition of product or service offerings beyond your core product or service.

Accepted Answer

A) True 
 B)False

Question 20

William Petty's article on harvesting notes that entrepreneurs will have ________.

Accepted Answer

A)  Chances to sell the business, take it public, or merge throughout the life of the business 
B)  Only one chance to harvest their investment in their firm 
C)  A chance to sell and a chance to merge, but this typically occurs within the first two years of the life of the business 
D)  All of the above 
E)  None of the above 
A)  Chances to sell the business, take it public, or merge throughout the life of the business 
B)  Only one chance to harvest their investment in their firm 
C)  A chance to sell and a chance to merge, but this typically occurs within the first two years of the life of the business 
D)  All of the above 
E)  None of the above

Exam 21: Franchising, Licensing, and Harvesting: Cashing in Your Brand

If you want to buy a business that is growing rapidly, what is the best valuation method to use to determine a fair price for it?

An employee stock ownership plan (ESOP) provides an employee retirement plan and allows the entrepreneur and partners to sell their stock and exit the company.

Which business is an example of a franchise?

Harvesting options include ________.

Book value is one of the most common methods for computing a company's valuation.

Why are franchisees typically assigned territories?

A way to replicate a business formula is through selling.

________, or spreading out the brand among many products and product lines, can increase market share, but it/they can also ________ the company.

The harvest or exit strategies set out in a business's plan are important not only to the entrepreneur but also to ________.

When an entrepreneur sells his or her company to its managers, this exit strategy is called ________.

Ways to value a business include comparison to other firms, benchmarking, or looking at a multiple of net earnings. Any of the methods is an attempt to arrive at a ________.

Why is it not a good idea to tell investors in your business plan that your exit strategy is simply "to take the business public"?

A license is ________.

If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would you earn in royalties?

A disadvantage of harvesting cash over time as an exit strategy is ________.

The franchisor owns the restaurant and agrees to market the food under the McDonalds name and trademark in the exact fashion developed by Kroc.

Explain growth by diversification.

Merging or being acquired ________.

Diversification is the addition of product or service offerings beyond your core product or service.

William Petty's article on harvesting notes that entrepreneurs will have ________.

Entrepreneurs Recognize Opportunities

Franchising

Finding Opportunity in an Existing Business

The Business Plan: Road Map to Success

Creating Business From Opportunity

Exploring Your Market

Developing the Right Marketing Mix and Plan

Pricing and Credit Strategies

Integrated Marketing Communications

Marketing Globally

Smart Selling and Effective Customer Service

Understanding and Managing Start-Up, Fixed, and Variable Costs

Using Financial Statements to Guide a Business

Cash Flow and Taxes

Financing Strategy: Debt, Equity, or Both

Addressing Legal Issues and Managing Risk

Operating for Success

Location, Facilities, and Layout

Human Resources and Management

Leadership and Ethical Practices

Filters

, or spreading out the brand among many products and product lines, can increase market share, but it/they can also the company.