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MGT 241 Midterm Ch. 7

The way to approach a new business venture is to think up a good or service that is unique.
True
Uniqueness in a product or service can be demonstrated through a new-new approach or a new-old approach.
True
The sources of new business ideas among men and women are identical in type and proportion.
False
Sales records are of very little value to a buyer in evaluating a company’s worth.
False
The actual cost of “opening the doors” of a franchise establishment can be more than $200,000.
True
Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying an existing one, is that the franchisor will usually provide both training and guidance to the franchisee.
True
Generally, the larger and more successful the franchisor, the greater the franchise fee that is charged.
True
The prospective investor should get as much information as possible on the franchisor.
True
Franchisees have the option of using the logo and symbols of the franchisor.
False
The terms upside gain and downside loss refer to the profits the business can make and the losses it can suffer.
True
The term risk versus loss refers to the amount of return for funds invested.
False
Business brokers help entrepreneurs locate the funds necessary to start a business.
False
The elimination of time and effort associated with starting a company is an advantage of acquiring an ongoing venture.
True
In purchasing an existing business the first question should be: “Why are you selling?”
True
When purchasing an existing business, the prospective owner should conduct an assessment of the business’s current group of employees.
True
The most important area to examine prior to purchasing a business is company profitability.
True
It is always important that you weigh advantages against disadvantages in purchasing a franchise.
True
It is not uncommon for a buyer to be faced with a franchise fee of $250,000 to $1,000,000.
False
Much franchise litigation has arisen over termination of owners.
False
The Federal Trade Commission does not provide information on franchise success.
False
In negotiating a deal to purchase an existing business, it is possible to request that the seller retain a minority interest in the firm.
True
The Franchise Disclosure Document (FDD) is a legally required disclosure document that must be presented to potential franchisees during presale discussions.
True
When one designs a unique good or service, the individual is said to have used a(n) ____approach to starting the business.
new-new
When one discusses upside gain and downside loss, one is talking about
risk versus reward
“Piggybacking” one’s way into a new business involves using a ____approach.
new-old
Which of the following is not a key question a prospective buyer needs to ask in buying a business?
What is the owner’s personal net worth?
Which of the following is an intangible asset?
goodwill
An advantage to buying an on-going business is
all of the above.
A key question to ask when buying an on-going small business is which of the following?
How many personnel are going to remain?
When buying a business, competition must be investigated because
all of the above
Which of the following is a question that can be sidestepped when buying a business?
All can be sidestepped.
Business-related reasons for selling may include all but which of the following?
All of the above.
An agreement not to compete is also known as
a legal restraint of trade.
Business-related reasons for selling do not include which of the following?
Changes in the product supply chain.
The inventory should be examined for which of the following?
All of the above.
An additional consideration to keep in mind when negotiating to purchase an existing business includes requesting that the seller retain __________ in the firm.
a minority interest
A ____ is a system of distribution that enables a supplier to arrange for a dealer to handle a specific product or service under certain mutually agreed upon conditions.
franchise
The individual who buys the franchise is the
franchisee.
A franchise system can be used for handlingv
both of the above.
The person who gets the franchise is usually required to do all of the following except:
design a logo for the unit.
The franchisee’s responsibilities include:
all of the above.
The advantages of franchising include:
all of the above.
The person who sells the franchise is usually required to do all of the following except:
pay a fee.
The “right questions” that a prospective owner should ask about a franchise deal with
all of the above.
Evaluating franchise opportunities include finding out more about which of the following?
all of the above
The FDD contains how many sections?
23
When should a potential franchisee receive the FDD (Franchise Disclosure Document)?
at least ten days before signing a contract or paying any money
Which of the following costs add to the cost of franchising?
all of the above
Coming up with a unique good or service is a _____ approach, while adapting something that is currently on the market or extending the offering to an area where it is not presently available is a(n) _____ approach.
new-new, new-old
Starting a business by adapting something already on the market is called __________.
a new-old approach
When buying a small business you need to know all of the following items except:
the owner’s family stability and relationships.
Reviewing personnel of the business about to be purchased is important in order to determine
all of the above
When this asset is purchased, the buyer should be sure to deduct those that they are deemed uncollectible.
accounts receivable
Business-related reasons for selling may include all except:
all of the above
The extra value a business can command in a sale is known as
goodwill
Competitor factors in a buying decision do not include
age of the competition’s owners.
The individual who arranges for a dealer to handle a specific product or service under certain mutually agreed upon conditions is known as the _____.
franchisor
The franchisor’s responsibilities include providing
all of the above
Which of the following is not a disadvantage of a major franchise?
track record of the franchisor
Which of the following costs do not add to the cost of franchising?
prepaid utility bills
The final decision to purchase a franchise should be up to
you.
Which is not a start-up expense?
Depreciation
Which is not a key question to ask when buying a business?
Is the building heated with gas or electricity?
The _____ approach indicates the importance of people’s awareness of their daily lives for developing new business ideas.
new-new
Which of the following is not currently cited as a trend creating business opportunities?
breakfast cereals
What is the largest source for new business ideas among men?
Prior job
What is the largest source of new business ideas among women?
Prior job
What is an often overlooked asset when acquiring a new business?
Records
An analysis of the competition should look for ______.
unscrupulous practices.
Who must negotiate a final deal to purchase a business?
The potential buyer
When is the buyer likely to have power over the seller in the negotiation to purchase a business?
if the seller has already purchased another business
When does a business have to increase its sales annually to net as much as it did in the previous year?
when profits are not rising as fast as sales

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