Q1. The primary consideration in negotiating a purchase agreement is to ensure the deal:
a. does not jeopardize the future financial health or cash flows of the business.
b. provides the buyer a good value and the seller fair compensation.
c. guarantees a minimum level of profitability for the business to remain viable.
d. provides a money back guarantee and a no-fault cancellation clause.
Q2. Bennett is considering buying a business and has collected the following information: Projected net earnings for next year = $117,000; rate of return on a similar risk investment = 27%. Hoping to use the market approach, Bennett has located three similar companies, whose stock is publicly traded. Their price-earnings ratios are 2.84, 2. 95, and 3.12. Under the market approach, how much is the business worth?
a. $117,000
b. $433,333
c. $93,822
d. $347, 490
Q3. If a business buyer purchases assets that, unknown to him, have liens against them, who has financial responsibility for them?
a. the buyer
b. the seller
c. the business broker
d. none of the above
Q4. About 85 percent of the companies that are available for sale are:
a. listed with business brokers.
b. advertised in the "Businesses for Sale" section of major newspapers.
c. found in the Internet.
d. tucked away in the "hidden market" of companies that are for sale but are not advertised as such.
Q5. Increasingly, entrepreneurs are starting businesses because they see an opportunity to make a difference in a cause that is important to them.
a. true
b. false
Q6. The QWERTYUIOP configuration so common on computer keyboards is an illustration of which barrier to creativity?
a. Searching for the one "right" answer
b. Blindly following the rules
c. Becoming overly specialized
d. Avoiding ambiguity
Q7. The most valuable financial resource any small business can have is:
a. cash
b. accounts receivable
c. bank line of credit
d. retained earnings
Q8. _________ are negative internal factors that act as roadblocks in a company's quest to meet its mission, goals, and objectives.
a. Strengths
b. Weaknesses
c. Opportunities
d. Threats
Q9. The unique components of a product's identity that a company uses to create a product's image and to promote it is called its:
a. trade costume
b. trade dress
c. trade wear
d. trademark
Q10. The very abilities that make an entrepreneur successful often lead to managerial ineffectiveness.
a. true
b. false
Q11. __________ partners cannot take an active role in the operation of a business, but if the business fails, they stand to lose only what they have invested in the company.
a. General
b. Limited
c. Master
d. Insulated
Q12. Nearly two years ago, Terry launched a business that has just failed. As a typical entrepreneur, what will Terry most likely do?
a. go to work for a major corporation.
b. try to learn from his failed venture so that he will not make the same mistake in the future.
c. give up on becoming a successful entrepreneur.
d. spend the rest of his life wondering what happened to his business.
Q13. A company's __________ spell(s) out the ends toward which a company is moving; its __________spell(s) out how it plans to reach those ends
a. mission, goals, and objectives; core competencies
b. strategy; core competencies
c. mission, goals and objectives; strategy
d. core competencies; strategy
Q14. Perhaps the best source of financing the purchase of a business is:
a. a commercial bank.
b. a venture capital company.
c. the seller.
d. an initial public offering (IPO).
Q15. Which of the following forms of ownership is taxed differently from the others
a. the sole proprietorship
b. the partnership
c. the corporation
d. the S-corporation
Q16. The key legal issue in the sale of an asset typically is the proper, lawful transfer of _______ from the seller to the buyer.
a. good title
b. liabilities
c. liens
d. contracts
Q17. Which of the following requirements must an S-corporation meet?
a. It must be a domestic corporation.
b. It can issue only one class of common stock, but it can issue voting and nonvoting shares of common stock.
c. It cannot have more than 75 shareholders.
d. All of the above.
Q18. Given the fact that most small companies lack the resources to reach a national or international market, many entrepreneurs choose to pursue a __________ strategy in which they specialize in meeting the needs of a specific target market segment.
a. low-cost
b. differentiation
c. focus
d. maintenance
Q19. The period of time allowed for the subconscious to reflect on information that has been gathered is called:
a. marination
b. reflection
c. illumination
d. incubation
Q20. In most business sales,
a. the buyer pays the seller 100 percent of the purchase price at the closing of the deal.
b. the seller finances 100 percent of the purchase price over a 30-year time period.
c. the buyer makes a down payment up front with the seller financing the remaining 30 to 80 percent of the purchase price over three to ten years.
d. the actual price the buyer pays is much more important than the structure and the terms of the deal.
Q21. The limited liability company (LLC) offers entrepreneurs
a. the tax advantages of a partnership.
b. the legal protection of a corporation.
c. maximum flexibility in the way it operates.
d. all of the above
Q22. According to VR Business Brokers, the average selling price of a small company is:
a. $55,000
b. $160,000
c. $575,000
d. $1,050,000
Q23. To validate an idea is accurate and useful, entrepreneurs may:
a. conduct experiments
b. run simulations
c. test market
d. build prototypes
e. All of the above.
Q24. __________ franchising is a system in which a franchiser provides franchisees with a complete business system, including a license for the tradename, the products or services to be sold, the physical plant, the methods of operation, a marketing plan, and other necessary business services.
a. tradename
b. product distribution
c. pure (or business format)
d. process
Q25. Polaroid's Creativity and Innovation Lab reports that out of every 3,000 new product ideas, __________ are actually launched, and __________ become(s) successful in the market.
a. 1000; 500
b. 500; 250
c. 10; 3
d. 2; 1
Q26. The aggregation of factors that sets a small business apart from its competitors and gives it a unique position in the market is its:
a. mission
b. competitive advantage
c. SWOT
d. Strategy
Q27. A strategy that involves dividing a mass market into smaller, more homogeneous units and then attacking only certain of these units is called:
a. segmenting
b. positioning
c. contesting
d. None of the above.
Q28. Which of the following items should be included on a business buyer? checklist
a. Inventory
b. Tax returns
c. Lawsuits
d. All of the above
Q29. The service sector produces ____ percent of the jobs and ____ percent of the gross domestic product in the United States.
a. 75; 27
b. 83; 52
c. 92; 85
d. 95; 92
Q30. Small businesses:
a. account for about 99 percent of all businesses in the United States.
b. employ 53 percent of the nation's private sector work force.
c. create more jobs than do large companies
d. produce 51 percent of the U.S. GDP.
e. all of the above
Q31. A rule of thumb for valuation of a business is to offer the owner 2.7 times the company's earnings.
a. true
b. false
Q32. A key success factor defines a relationship between a controllable variable and a critical factor affecting the firm's ability to compete.
a. true
b. false
Q33. Every partnership must have at least one __________ partner.
a. general
b. limited
c. silent
d. master
Q34. You are using the excess earnings approach to determine the value of a business you have determined to be a "normal risk" business. What "years of profit" figure should you use to estimate the value of the intangible assets?
a. 1 to 2
b. 3 to 4
c. 6 to 7
d. 10 to 12
Q35. _________ is the difference between an established, successful business and one that has yet to prove itself.
a. Goodwill
b. Opportunity cost
c. Equity
d. Consideration
Q36. The most common form of business ownership in the United States is the:
a. sole proprietorship
b. the partnership
c. the corporation
d. the S-corporation
Q37. Which element of the strategic management process addresses the first question of any business venture: "What business am I in?"
a. vision
b. mission
c. SWOT analysis
d. Strategy
Q38. Franchise experts consider the three most important factors in franchising to be:
a. training, advertising, and location.
b. management expertise, financial reserves, and customer traffic.
c. financing, timing, and location.
d. location, location, and location.
Q39. Which of the following activities comes first in the strategic management process?
a. Formulate a meaningful mission statement
b. Identify the company's strengths, weaknesses, opportunities, and threats.
c. Identify the key factors for success in the business
d. Develop a clear vision for the business.
Q40. The balanced scorecard:
a. gives managers a comprehensive view of an organization's performance from both a financial and an operational perspective.
b. operates on the premise that relying on any single measure of a company's performance is dangerous.
c. measures a company's performance by viewing it from a financial perspective, a customer perspective, an internal business perspective, and an innovation and learning perspective.
d. all of the above.
Q41. Which of the following is a way to enhance organizational creativity?
a. Expecting creativity
b. Expecting and tolerating failure
c. Viewing problems as challenges
d. All of the above
Q42. How many of the following characteristics may a limited liability company (LLC) have: 1) limited liability, 2) continuity of life, 3) free transferability of interest, and 4) centralized management?
a. only 1
b. no more than 2
c. no more than 3
d. all 4, if the owners choose
Q43. Approximately __________ percent of the small companies that are up for sale ever get sold.
a. 25 to 33
b. 40 to 50
c. 65 to 73
d. 80 to 85
Q44. A grant from the U.S. federal government that gives a person an exclusive right to make or sell a product is called a:
a. monopoly
b. patent
c. copyright
d. trademark
Q45. The balance sheet technique of business valuation is ___________.
a. commonly used and recommended.
b. commonly used but not recommended.
c. not commonly used but recommended.
d. neither commonly used nor recommended.
Q46. The primary motivating force behind entrepreneurs is:
a. money
b. fame.
c. achievement.
d. recognition.
Q47. The first step a person considering buying a business should take is to:
a. Develop a list of criteria that a potential business acquisition must meet
b. Take a self-inventory to determine his or her skills, abilities, and interests.
c. Prepare a list of potential acquisition candidates.
d. Contact a business broker.
Q48. The first rule of negotiating is never confuse price with value.
a. true
b. false
Q49. For years, a small, locally-owned pizza restaurant located near a university in a small town has focused on the university's students, offering them special student discounts and free on-campus delivery. Recently, Domino's Pizza announced its intention to open a new location in the same town so that it can sell pizza to the university students. To the locally-owned pizza restaurant, Domino's decision represents a:
a. strength
b. weakness
c. opportunity
d. threat
Q50. A clearly defined vision:
a. provides meaningful direction for a company.
b. influences the decisions, both large and small, the people in an organization make.
c. motivates employees to higher levels of performance.
d. All of the above