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Entrepreneurship Test 2 T/F

Franchising is a form of business organization in which a firm that already has a successful product or service licenses its trademark and method of doing business to other businesses in exchange for an initial franchise fee and an ongoing royalty.
True
A business format franchise typically connects a single manufacturer with a network of dealers or distributors.
False
The business format franchise is a more popular approach to franchising than the product and trademark franchise.
True
In a business format franchise, the franchisor provides a formula for doing business to the franchisee along with training, advertising, and other forms of assistance.
True
Business format franchises typically allow franchisees substantial flexibility in how they run their individual franchise units.
False
An area franchise agreement allows a franchisee to own and operate a specific number of outlets in a particular geographic area.
True
The people who buy franchises from master franchisees are typically called employee-franchisees.
False
Despite its advantages, franchising is not a popular form of business growth.
False
Target is an example of an organization that is perfectly suited for franchising, but it doesn’t franchise.
False
An individual who is team oriented is typically a good candidate to be a franchisee.
True
The primary disadvantage of franchising is that an organization allows others to profit from its trademark and business method.
True
A management concept called agency theory refutes the value of franchising for organizations with multiple units, like restaurant chains.
False
In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly net income.
False
Franchisees are often required to pay into a national or regional advertising fund, even if the advertisements are directed at goals other than promoting the franchisor’s product or service.
True
The royalty fees a franchisee pays are usually around 10 percent of gross income.
False
One of the most important questions a prospective franchisor should consider is whether the fees and royalties charged by a franchisor are consistent with the franchise’s value or worth.
True
The Franchise Disclosure Document contains a total of 23 categories of information that give a prospective franchisee a broad base of information about the background and financial health of the franchisor.
True
Franchisors are required by law to disclose all their costs in a document called the Franchise Disclosure Document.
True
The franchise agreement, or contract, is the document that consummates the sale of a franchise.
True
The majority of franchisors are highly ethical individuals who are interested only in making a fair return on their investment.
True

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