MANAGEMENT MULTI CHOICE QUESTIONS

Q1. Which of the following should alert a potential franchisee that a franchiser is dishonest?
a. Claims that the franchise contract is a standard one and that “you don’t need to read it.”
b. No written documentation to support claims and promises the franchiser makes about the franchise, its operation, and its performance.
c. Reluctance to provide a list of existing franchisees to talk to.
d. All of the above.

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. 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

Q4. 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

Q5. 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.

Q6. Which of the following items should be included on a business buyer?s checklist
a. Inventory
b. Tax returns
c. Lawsuits
d. All of the above

Q7. Which of the following statements concerning family businesses is false?
a. Family businesses account for just 10 percent of all of the companies in the United States.
b. Family businesses employ 50 million people and account for over 55 percent of the nation’s GDP.
c. A significant threat to family businesses comes from within: only about 30 percent of them survive to the second generation.
d. All of the above.

Q8. Most entrepreneurs work ______ hours per week.
a. 1-39
b. 40-50
c. 50-60
d. more than 60

Q9. In which of the following countries is entrepreneurial activity most prevalent?
a. Japan
b. Germany
c. Great Britain
d. United States

Q10. The failure rate for franchises is __________ the failure rate for independent businesses.
a. lower than
b. higher than
c. the same as
d. cannot be determined

Q11. 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

Q12. Studies show that more than __________ percent of all business acquisitions fail to meet the buyer’s expectations.
a. 10
b. 30
c. 50
d. 70

Q13. 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

Q14. Innovation is the ability to develop new ideas and to discover new ways of looking at problems and opportunities.
a. true
b. false

Q15. The most valuable financial resource any small business can have is:
a. cash
b. accounts receivable
c. bank line of credit
d. retained earnings

Q16. Building a company’s strategy around it core competencies enables a business to gain a sustainable competitive advantage.
a. true
b. false

Q17. __________ franchising involves combining two or more complementary franchises, such as a Texaco gas station, a Burger King restaurant, and a TCBY yogurt franchise, in the same location.
a. master
b. conversion
c. multiple-unit
d. Piggyback

Q18. The _____ specialized a business is, the _____ the likelihood that a bargain may be found.
a. more; greater
b. more; lesser
c. less; greater
d. less; lesser

Q19. Studies of the small business failure rate suggest that after six years, about __________ percent of new businesses will have failed.
a. 33
b. 49
c. 63
d. 82

Q20. Which of the following statements about choosing a form of ownership is false?
a. The choice of a form of ownership can have far-reaching effects on almost every aspect of a business and its owner.
b. Each form of ownership has its own unique set of advantages and disadvantages
c. The S-corporation is the best form of ownership for entrepreneurs.
d. All of the above.

Q21. Bizcomp found the average sale price for small businesses across the United States was _____ times earnings.
a. 15
b. 25
c. 0.05 to 0.10
d. 2.7

Q22. Which of the following statements concerning entrepreneurship in the United States is true?
a. A new business is born every 11 seconds in the United States
b. One out of every 12 Americans is actively involved in trying to start a new business.
c. A study found that 78 percent of influential Americans believe that entrepreneurship will be the defining trend of this century.
d. All of the above

Q23. _________ 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

Q24. The very abilities that make an entrepreneur successful often lead to managerial ineffectiveness.
a. true
b. false

Q25. 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

Q26. The essence of what a franchisee buys from a franchiser is ___________.
a. a steady source of capital.
b. the franchiser’s experience
c. a marketing system.
d. an efficient building design.

Q27. Which of the following statements concerning franchising is true?
a. Franchise sales total more than $1 trillion.
b. Franchises account for 44 percent of all retail sales.
c. A new franchise opens somewhere in the world every six-and-a-half minutes
d. All of the above.

Q28. Which of the following strategies works best when a company is appealing to price-sensitive customers and competes with firms that sell the same commodity products?
a. low-cost
b. differentiation
c. focus
d. maintenance

Q29. Experts estimate that __________ percent of franchisers are dishonest.
a. 5 to 10
b. 15 to 20
c. 25 to 30
d. 45 to 50

Q30. Which form of ownership has the greatest ability to attract capital?
a. sole proprietorship
b. partnership
c. corporation
d. S-corporation

Q31. __________ are entrepreneurial couples who work together as co-owners of their business.
a. Dropouts
b. Copreneurs
c. Castoffs
d. Angels

Q32. The basis for the global economy today is __________ capital.
a. financial
b. manufacturing
c. intellectual
d. economic

Q33. When evaluating the assets a company owns, a prospective buyer should be most interested in their __________ value.
a. book
b. par
c. market
d. stated

Q34. A ________ gives one the right to exclude others from making, using, or selling something.
a. trade secret
b. trademark
c. copyright
d. patent

Q35. In a competitive profile matrix, a factor that represents a major strength to a company would receive a rating of:
a. 1
b. 2
c. 3
d. 4

Q36. Although this exit strategy is the safest path for a business owner selling out, it is also the most expensive, given the tax liability it generates for the seller.
a. straight business sale
b. selling a controlling interest
c. selling to company employees through an employee stock ownership plan (ESOP)
d. selling to the seller’s children by establishing a family limited partnership

Q37. 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.

Q38. 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.

Q39. ________ is the ability to see the similarities and connections among various data and events.
a. Vertical thinking
b. Lateral thinking
c. Convergent thinking
d. Divergent thinking

Q40. 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

Q41. An effective strategy makes the customer its focus.
a. true
b. false

Q42. __________ 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

Q43. 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

Q44. A plant patent can be obtained:
a. for the layout of a new manufacturing facility.
b. extends for 20 years from the date of filing.
c. only if the plant can be reproduced asexually
d. None of the above.

Q45. A valid copyright last for:
a. the life of the creator.
b. 20 years from the date of publication and can be renewed once.
c. 50 years.
d. the life of the creator plus 50 years.

Q46. 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

Q47. Locating franchised outlets in high-traffic, non-traditional locations such as airports, hospitals, zoos, sports arenas, and others is based on the principle of:
a. conversion franchising
b. intercept marketing
c. master franchising
d. piggyback franchising

Q48. Today, home-based businesses:
a. are confined primarily to the traditional areas of arts and crafts.
b. are booming because of their low start-up costs, flexibility, and ability to take advantage of modern technology.
c. are so small that they produce negligible incomes for their owners.
d. all of the above.

Q49. 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.

Q50. Porter defined the cost leadership strategy in terms of:
a. reaching buyers whose major purchase criterion is price.
b. establishing the industry’s floor price.
c. winning a price war.
d. d. All of the above

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