1. Before purchasing an existing business, an entrepreneur should analyze both its existing and its potential customers.

   True

   False

5 points

QUESTION 3

1. During the acquisition process, the buyer and the seller sign a ___________, which spells out the parties' final deal and represents the details of the agreement that are the result of the negotiation process.

   		covenant not to compete
   		non-disclosure document
   		letter of intent
   		purchase agreement

5 points

QUESTION 4

1. Some franchisors offer ___________ to give existing franchisees the right to exclusive distribution of brand name goods or services within a particular geographic area.

   		territorial protection
   		exclusive rights
   		guaranteed protection
   		exclusivity

5 points

QUESTION 5

1. Skimming is the act of taking money from sales without reporting it as income and it is an illegal and unethical practice.

   True

   False

5 points

QUESTION 6

1. Which of the following should make a potential franchisee suspicious about a franchisor's honesty?

   		Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over.
   		An offer of direct financing of a specific element of the franchise package.
   		Not providing detailed operational information until 10 days before signing the contract.
   		Requiring franchisees to spend a certain percentage of profits on advertising.

5 points

QUESTION 7

1. Advantages to buying an existing business that you do not have with a startup include:

   		greater access to venture capital.
   		the opportunity to participate in a national advertising campaign.
   		inventory is in place and trade credit is established.
   		easy implementation of innovations and changes from past policies.

5 points

QUESTION 8

1. A business buyer should build his or her own pro forma income statement from an existing firm's accounting records and compare it to the same statement provided by the owner.

   True

   False

5 points

QUESTION 9

1. A non-disclosure document is an agreement between a business buyer and a seller that requires the buyer to maintain strict confidentiality of all records, documents, and information he receives during the parties' negotiations.

   True

   False

5 points

QUESTION 10

1. Which of the following valuation methods does NOT consider the future income-earning potential of a business?

   		Balance sheet technique
   		Excess-earnings method
   		Discounted future earnings approach
   		Market approach

5 points

QUESTION 11

1. Establishing a Baskin-Robbins franchise inside a Blimpee's franchise is an example of __________ franchising.

   		multi-unit
   		master
   		piggyback
   		diversionary

5 points

QUESTION 12

1. The failure rate for franchises is below that for other types of new businesses.

   True

   False

5 points

QUESTION 13

1. The due diligence process in analyzing and evaluating an existing business can be just as time consuming as the development of a comprehensive business plan for a startup.

   True

   False

5 points

QUESTION 14

1. A method of valuing a business based on the value of the company's net worth is the:

   		balance sheet technique
   		adjusted balance sheet technique
   		earnings approach
   		opportunity cost technique

5 points

QUESTION 15

1. Some business brokers differentiate between two types of buyers: ______________buyers see buying a business as a way to generate income and _____________ buyers view the purchase as part of a larger picture to offer a long-term advantage.

   		strategic; financial
   		financial; strategic
   		strategic; optimistic
   		financial; passive

5 points

QUESTION 16

1. The ____________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

   		balance sheet
   		capitalized earnings
   		adjusted balance sheet
   		discounted future earnings

5 points

QUESTION 17

1. A company's P/E ratio is:

   		the price of one share of its common stock divided by its earnings per share.
   		its profits per share divided by its equity per share.
   		its profits per share divided by its excess cash flow per share.
   		None of the above.

5 points

QUESTION 18

1. A creditor's claim against an asset is referred to as a lien.

   True

   False

5 points

QUESTION 19

1. Which of the following is NOT a potential advantage of franchising for the franchisee?

   		Management training and assistance
   		National advertising program
   		Centralized buying power
   		Limited product line

2. The bigger the franchise, the more successful the franchisees will be.

   True

   False