Question 1

Cory Raider is leading a group of stockholders who want to take the Bigbux Corporation private. If Cory's group succeeds, Bigbux's stock will no longer be available to investors on the open market.

Accepted Answer

A) True 
 B)False

Question 2

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

Accepted Answer

A) True 
 B)False

Question 3

Dane is a stockholder in SmallWorld, Inc., a C corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld goes bankrupt, Dane and the other stockholders will:

Accepted Answer

A)  be personally responsible for all remaining debts. 
B)  lose their investment but nothing else. 
C)  be entitled to full reimbursement of any investment losses. 
D)  automatically qualify for federal reimbursement for any losses suffered by the firm.

Question 4

Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach towel line, is trying to decide which form of business ownership is right for her. As a young mother who aspires to send her children to college some day, she does not want to jeopardize her savings account in any way. In order to overcome these risks, Sandy should start her business as a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 5

In the Figure 5.2, the authors suggest that potential partners discuss the types of skills that each brings to the business. Partners with complementary skills may enhance the business.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

Accepted Answer

A)  Very few American franchisors of any size have had success in international markets. 
B)  Large franchisors have had success in other nations, but newer and smaller franchisors have lacked the financial strength and reputation to succeed in global markets. 
C)  The only nations in which American franchisors have achieved any success are Great Britain and Mexico. 
D)  Both large and small franchises have found success in foreign countries by providing convenience and a predictable level of service and quality.

Question 7

One important consideration when prospecting for a good franchise business is:

Accepted Answer

A)  the saturation rate of the franchise. The more saturation the better. 
B)  the market potential for the product or service, at the prices you need to charge. 
C)  the population level of the area where you will operate. Large populations are too overwhelming, often needlessly increasing demand. 
D)  a limited disclosure statement, and being mindful that any disclosure statement may limit your success.

Question 8

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

Accepted Answer

A) True 
 B)False

Question 9

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

Accepted Answer

A) True 
 B)False

Question 10

Jane has always disliked the notion that the customers, managers and workers of a business are separate individuals with competing goals. She has joined with many other people in her community who share this view to become a member, and part owner, of a child care center. Jane and the other members operate the center for their own benefit, and each is expected to work at the center at least 12 hours each month. The type of organization Jane belongs to is known as a joint venture.

Accepted Answer

A) True 
 B)False

Question 11

A ___________ is an organization that is owned and controlled by the people who use it-producers, consumers and workers with similar needs pool their resources for mutual gain.

Accepted Answer

A)  corporation 
B)  limited partnership 
C)  mutual fund 
D)  cooperative

Question 12

When two firms join together to form one company, it is called a merger.

Accepted Answer

A) True 
 B)False

Question 13

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n):

Accepted Answer

A)  golden parachute. 
B)  arbitrage agreement. 
C)  factor transaction. 
D)  leveraged buyout.

Question 14

According to Figure 5.2, attributes such as trust and integrity are not something you should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf.

Accepted Answer

A) True 
 B)False

Question 15

Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell off personal assets to pay for the debts of the firm.

Accepted Answer

A) True 
 B)False

Question 16

Taking a firm private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover.

Accepted Answer

A) True 
 B)False

Question 17

The Uniform Partnership Act is law in every state except Louisiana.

Accepted Answer

A) True 
 B)False

Question 18

When two companies in the same industry agree to become one firm, the result is called a:

Accepted Answer

A)  vertical merger. 
B)  joint venture. 
C)  monopoly. 
D)  horizontal merger.

Question 19

The S corporation is likely to be less popular in the future because:

Accepted Answer

A)  congress repealed the limited liability protection of S corporations and limited them to companies with earnings of less than $3 million per year. 
B)  limited liability companies, which do not have the restrictive eligibility requirements of S corporations and offer greater flexibility in the choice of tax treatment, are now legal in all 50 states. 
C)  many states significantly increased the annual fee that S corporations must pay to maintain their tax status, thus eliminating the financial advantages of this form of ownership. 
D)  S corporations have been made illegal in several states as a reaction to widespread abuse of the special benefits available to this type of business.

Question 20

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

Cory Raider is leading a group of stockholders who want to take the Bigbux Corporation private. If Cory's group succeeds, Bigbux's stock will no longer be available to investors on the open market.

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

In the Figure 5.2, the authors suggest that potential partners discuss the types of skills that each brings to the business. Partners with complementary skills may enhance the business.

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

One important consideration when prospecting for a good franchise business is:

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

A ___________ is an organization that is owned and controlled by the people who use it-producers, consumers and workers with similar needs pool their resources for mutual gain.

When two firms join together to form one company, it is called a merger.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n) :

According to Figure 5.2, attributes such as trust and integrity are not something you should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf.

Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell off personal assets to pay for the debts of the firm.

Taking a firm private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover.

The Uniform Partnership Act is law in every state except Louisiana.

When two companies in the same industry agree to become one firm, the result is called a:

The S corporation is likely to be less popular in the future because:

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.