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Chapter 5 Assignment

Which of the following statements regarding family-owned businesses is true?

Family-owned companies must be closed corporations.

Family-owned companies are an example of a not-for-profit corporation.

Only a small percentage of family-owned businesses survive into the second or third generation.

Family-owned companies must submit a written agreement to the state in which it organizes.

Only a small percentage of family-owned businesses survive into the second or third generation.
Small-business owners want to determine whether their companies meet the standards for small-business designation because

they do not have to pay taxes on their profits.

government agencies offer benefits designed to help small businesses compete with larger firms.

incorporation is easier for them.

banks are more likely to grant them loans.

government agencies offer benefits designed to help small businesses compete with larger firms.
Although the average farm size has increased in recent years the majority of farmers operate as ________ businesses.

Small

Government owned

Large

Partnerships

Small
________ of small businesses are considered home-based businesses.

About 25 percent

About 50 percent

About 75 percent

Less than 25 percent

About 50 percent
Small businesses that provide ________ have experienced the greatest increase in new jobs.

Retailing merchandise

Services

Goods

Products

Services
Innovation is possible in small business because they ________.

provide fertile ground for new ideas

work harder

employ highly intelligent, motivated people

have the funds to turn new ideas into large-scale, profitable ventures

provide fertile ground for new ideas
Owners of small businesses can increase their chances of success if they:

hire only family members or friends.

understand their own limitations.

become an expert in legal, financial, marketing, and other related business areas.

incorporate their business.

understand their own limitations.
A small business fails in the management sense when ________.

marketing training is lacking

staffs are overworked

overall business training is lacking

financial training is lacking

overall business training is lacking
According to surveys, the largest lenders to small businesses are ________ .

investors

credit card companies

family members

commercial banks

commercial banks
A business plan for a small business typically contains all of the following EXCEPT ________.

a statement of the company’s goals

a detailed time frame for achieving goals

projections of money flows

a time frame for selling stock to investors

a time frame for selling stock to investors
___________ use their own capital supplemented with government loans to invest in small businesses.

Microloans

Joint ventures

Franchisors

Small Business Investment Companies (SBICs)

Small Business Investment Companies (SBICs)
The Small Business Administration (SBA) provides all of the following EXCEPT ________.

business incubators

loan guarantees

advice from retired executives

access to venture capitalists

business incubators
Haseem owns a small business and needs assistance on a variety of issues. The Small Business Administration (SBA) can help him by providing ________.

government procurement

an advertising specialist

a business incubator

an accountant

government procurement
The ________ industry represents the greatest percentage of minority-owned businesses.

Transportation

Retail

Finance

Service

Service
Which of the following is a trend in the area of franchising?

Franchisees are able to negotiate better pricing than franchisors.

Franchisees determining their own pricing and marketing.

Franchises are becoming less expensive to fund.

More franchises are opening outside the United States.

More franchises are opening outside the United States.
Greg buys a McDonald’s franchise. Greg is the ________ and ________ for McDonald’s.

franchisor; does not work

franchisor; works

franchisee; works

franchisee; does not work

franchisee; does not work
Sole proprietorships have all of the following advantages EXCEPT ________.

profits subject only to a single tax

ease of formation

unlimited life

ease of liquidation

unlimited life
The stock of Old Germany Brewery is totally owned by the Prechter family. When the family elected to move from a sole proprietorship to a corporation, the greatest concern was ________.

there might be family squabbles

choosing work assignments

double taxation

how to limit liability

double taxation
Richard, Sarah, and Trevor form a partnership because it offers the following advantage:

unlimited financial liability

limiting liability of partners to the value of their interests in the company

greater financial resources

double taxation

greater financial resources
Devon and Keith opened a restaurant as a partnership. Two years later, Keith left the restaurant, and Devon discovered that Keith had charged numerous expenses to their account. These expenses resulted in thousands of dollars worth of debt for the restaurant. What option does Devon have in this situation?

He doesn’t have to worry because, according to law, everyone is responsible for his/her own debts.

Business creditors will expect Devon to pay at least half the debt since he owns 50 percent of the business.

Business creditors will pursue Keith alone since his signature authorized payments.

Business creditors will expect full payment from Devon.

Business creditors will expect full payment from Devon.
Although ______ are the most common type of business ownership, the greatest revenues come from ______.

sole proprietorships, corporations

partnerships, corporations

corporations, partnerships

sole proprietorships, partnerships

sole proprietorships, corporations
The maximum number of shareholders is limited to ________ for a firm to qualify as a subchapter S corporation.

100

50

75

25

100
When founding members of Mary Kay Inc. wanted to regain family control of the cosmetics business, they changed the company ownership from publicly held to ________, in order to control and manage corporate activities.

closed

restricted

limited

preferred

closed
All of the following are duties of the board of directors of a corporation EXCEPT ________.

guaranteeing the payment of cash dividends every year

electing its own officers

authorizing major transactions of the corporation

hiring the corporation’s chief executive officer

guaranteeing the payment of cash dividends every year
Lucia is a chief financial officer in a large corporation. Her responsibilities include the full financial authority to make appropriations and authorize expenditures. Lucia is likely to be a member of ________ management.

Supervisory

Advisory

Middle

Top

Top
___________ must verify in writing the accuracy of their corporation’s financial statements.

Board members

Governmental officials

CEOs and CFOs

Stockholders

CEOs and CFOs
United Airlines’ purchase of Continental Airlines combines the resources and capabilities of both firms to create the world’s largest airline. The newly formed company is an example of a _____________.

conglomerate merger

vertical merger

joint venture

horizontal merger

horizontal merger
If Smith Steel buys Kennedy Iron Ore to assure itself of a constant flow of ore, this is an example of a ________.

subsidiary corporation

conglomerate company

domestic company

vertical merger

vertical merger
The joining of Volkswagen and Porsche was an example of a ________.

vertical merger

conglomerate merger

horizontal merger

joint venture

horizontal merger
Which type of merger results in decreased competition within the same industry?

horizontal merger

joint venture

vertical merger

conglomerate merger

horizontal merger
The ________ is most likely an example of public ownership.

movie theater

television company

trucking company

city sewer system

city sewer system
Alternatives to private ownership include ________.

employee ownership and collective ownership

foreign corporations and public ownership

employee ownership and foreign corporations

public ownership and collective ownership

public ownership and collective ownership
What characterizes a small business?

It is independently owned and operated and is not dominant in its field.

It operates at a loss for many years until it is a large business.

Small businesses grow slowly.

Small businesses are sole proprietorships.

It is independently owned and operated and is not dominant in its field.
Which of the following is least likely to be a small business?

A restaurant

A nursing home

A construction company

An auto repair shop

A nursing home
Why do home-based businesses often have lower costs?

Customers are not willing to pay competitive prices for home-based services.

Funds that are not being used to pay rent can be directed into the business.

Owners work more hours because their office is their home.

There is an increase in the owner’s quality of life.

Funds that are not being used to pay rent can be directed into the business.
Small businesses are much more likely to fail than large businesses, especially during economic downturns because of

inadequate financing.

difficulty dealing with government regulations.

management shortcomings.

all of these answers are correct.

all of these answers are correct.
An effective business plan should include:

the vision of the founder(s) and its mission.

all of these answers are correct.

a description of potential competitors.

a description of what makes the company unique.

all of these answers are correct.
The primary purpose for developing a business plan is:

to charter the new business with the state in which it is located.

to document the founding history of the business.

to obtain financing for the business.

to outline the qualifications of the new business owner(s).

to obtain financing for the business.
When small firms need loans, the most frequent source of funding is

commercial bank loans.

credit cards.

home equity loans.

trade credit.

trade credit.
Which of the following do not grant direct loans to small businesses?

SBICs

commercial banks

private lenders

SBA

SBA
Why do so many small business owners rely on personal credit cards to finance their businesses?

Credit card companies do not care if you are using the credit card for business or personal reasons as long as the balance is paid.

Interest rates on credit cards are less than banks charge for business loans.

Banks only lend to corporations, not sole proprietorships.

Small business owners usually do not know how to apply for bank loans.

Credit card companies do not care if you are using the credit card for business or personal reasons as long as the balance is paid.
Which of the following is not a benefit to the franchisor in a franchise agreement?

A franchisor can make better buying deals because of quantity purchases.

A franchisor employs fewer direct employs.

A franchisor can handle a larger, more complex business.

A franchisor is in control of the daily operations of a much larger business.

A franchisor is in control of the daily operations of a much larger business.
A franchisor

incurs no risk in the transaction.

guarantees profits to the purchaser.

provides building plans, site selection help, managerial programs and other services for a fee.

is the small business person who purchases the franchise.

provides building plans, site selection help, managerial programs and other services for a fee.
What portion of U.S. retail sales are attributed to franchises?

50%

75%

80%

60%

50%
Which is the most common form of business ownership?

corporation

sole proprietorship

partnership

public ownership

sole proprietorship
Which of the following is not an advantage of a corporation?

Ease of formation

Continuity

Expanded financial capacity

Limited liability for the owners

Ease of formation
Which of the following is a major draw-back to family-owned businesses?

succession.

having full control of business operations.

double taxation on income.

financially benefitting from own ideas/efforts.

succession.
Why might a firm acquire another company?

Acquisitions allow a company to enter new markets and improve competitiveness.

Acquisitions are always less expensive than creating new products.

Governments regulate acquisitions less than they do mergers.

Mergers guarantee future profitability.

Acquisitions allow a company to enter new markets and improve competitiveness.
A corporation in which employees share in whatever profit their company earns is known as:

closely-held corporations.

stock-ownership corporations.

worker-funded corporations.

employee-owned corporations.

employee-owned corporations.
When a group of wheat farmers collectively purchases a grain elevator, this is an example of:

private ownership.

public ownership.

employee ownership.

cooperative ownership.

cooperative ownership.

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