Question 1

Stock options are the right to purchase shares of the corporation for a fixed price.

Accepted Answer

A) True 
 B)False

Question 2

When entering into a new partnership, a good strategy is to:

Accepted Answer

A)   avoid putting the agreement in writing since this would limit the flexibility of the partnership.
B)   put the partnership agreement in writing.
C)   plan to incorporate as soon as possible.
D)   agree to put the first year's profits back into the partnership.E) B) and D)
F) A) and B)

Question 3

All partners in a general partnership have limited liability for the debts of their firm.

Accepted Answer

A) True 
 B)False

Question 4

Your friend Brett called to tell you he just heard a sales pitch for a new website development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although you lack expertise in graphic design or html programming, this should be a safe investment since it is already advertised as a franchise system. It's probably too good to pass up.

Accepted Answer

A) True 
 B)False

Question 5

A distinguishing feature of a cooperative is that it:

Accepted Answer

A)   maintains a distinct separation between ownership and management.
B)   is only intended to operate for a limited period of time.
C)   is owned and operated by the people who use it.
D)   can have no more than 75 owners, all of whom must be citizens of the United States.E) A) and B)
F) A) and C)

Question 6

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring businesspeople who are willing to pay agreed-upon fees and meet certain contractual terms. Daggie's:

Accepted Answer

A)   is offering investors the opportunity to form limited partnerships.
B)   is a franchisor.
C)   creates private subsidiary companies.
D)   offers a tax-free investment potential.E) None of the above
F) B) and C)

Question 7

A conglomerate merger will:

Accepted Answer

A)   diversify business operations and investments.
B)   allow the firm to have a less dominant position in its market.
C)   enable the firm to enjoy a higher degree of specialization.
D)   give the firm a more secure access to needed materials and components and better control over quality.E) A) and B)
F) B) and C)

Question 8

Jenna plans to invest in a cleaning service franchise called Spare Time. At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

Accepted Answer

A)   the initial investment, also known as the franchise fee paid to the franchisor.
B)   the cost of supplies that she will purchase one time each month from the parent company.
C)   milestones that the parent company expects her to reach. With each milestone, she will be rewarded with commissions.
D)   a share of the profits or a percentage share of revenues (net sales) .E) B) and C)
F) All of the above

Question 9

A franchise may be organized as a sole proprietorship, partnership, or corporation.

Accepted Answer

A) True 
 B)False

Question 10

When investors successfully take a firm private, the firm's stock is:

Accepted Answer

A)   converted into bonds.
B)   converted into cash.
C)   no longer sold to investors on the open market.
D)   pledged as collateral to its bondholders.E) All of the above
F) B) and C)

Question 11

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about buying a franchise is most accurate?

Accepted Answer

A)   One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed.
B)   Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market.
C)   Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained.
D)   Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business.E) A) and D)
F) All of the above

Question 13

A ______________ merger unites firms at different stages of related businesses.

Accepted Answer

A)   vertical
B)   horizontal
C)   diagonal
D)   conglomerateE) None of the above
F) B) and C)

Question 14

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n)  _________________ with a negotiated selling price of $52 billion.

Accepted Answer

A)   merger
B)   aggregate
C)   acquisition
D)   unequivocal buy-inE) None of the above
F) A) and B)

Question 15

Two of Diana's friends have approached her about starting a new business. Diana is willing to invest money in the business and share in its profits, but she has no desire to be involved in the day-to-day management of the company, nor is she willing to risk any amount beyond her initial investment. Diana's preferences suggest that she prefers a general partnership form of business ownership.

Accepted Answer

A) True 
 B)False

Question 16

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

Accepted Answer

A) True 
 B)False

Question 17

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

Accepted Answer

A)   sole proprietorship.
B)   cooperative.
C)   C corporation.
D)   general partnership.E) None of the above
F) A) and B)

Question 18

Nick wants to start his own business. Nick should consider a sole proprietorship if he:

Accepted Answer

A)   expects rapid growth and wants to be able to raise a large sum of money.
B)   wants to make it easy to attract qualified employees.
C)   wants to be his own boss and can accept unlimited liability.
D)   wants to minimize the financial risk he must accept as the owner of a business.E) A) and C)
F) B) and D)

Question 19

The __________ is the most common form of business ownership.

Accepted Answer

A)   partnership
B)   corporation
C)   joint venture
D)   sole proprietorshipE) B) and D)
F) B) and C)

Question 20

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

Correct Answer
verified

Nick wants to start his own business. Nick should consider a sole proprietorship if he:

Correct Answer
verified

A conglomerate merger will:

Correct Answer
verified

Correct Answer
verified

A franchise may be organized as a sole proprietorship, partnership, or corporation.

Correct Answer
verified

Correct Answer
verified

A ______________ merger unites firms at different stages of related businesses.

Correct Answer
verified

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

Correct Answer
verified

When investors successfully take a firm private, the firm's stock is:

Correct Answer
verified

All partners in a general partnership have limited liability for the debts of their firm.

Correct Answer
verified

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

Correct Answer
verified

Which of the following statements about buying a franchise is most accurate?

Correct Answer
verified

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

Correct Answer
verified

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring businesspeople who are willing to pay agreed-upon fees and meet certain contractual terms. Daggie's:

Correct Answer
verified

A distinguishing feature of a cooperative is that it:

Correct Answer
verified

When entering into a new partnership, a good strategy is to:

Correct Answer
verified

The __________ is the most common form of business ownership.

Correct Answer
verified

Stock options are the right to purchase shares of the corporation for a fixed price.

Correct Answer
verified

Jenna plans to invest in a cleaning service franchise called Spare Time. At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

Correct Answer
verified

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Correct Answer
verified

Exam 5: How to Form a Business

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

Correct AnswerverifiedShow Answer

Nick wants to start his own business. Nick should consider a sole proprietorship if he:

Correct AnswerverifiedShow Answer

A conglomerate merger will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A franchise may be organized as a sole proprietorship, partnership, or corporation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A ______________ merger unites firms at different stages of related businesses.

Correct AnswerverifiedShow Answer

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

Correct AnswerverifiedShow Answer

When investors successfully take a firm private, the firm's stock is:

Correct AnswerverifiedShow Answer

All partners in a general partnership have limited liability for the debts of their firm.

Correct AnswerverifiedShow Answer

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

Correct AnswerverifiedShow Answer

Which of the following statements about buying a franchise is most accurate?

Correct AnswerverifiedShow Answer

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

Correct AnswerverifiedShow Answer

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring businesspeople who are willing to pay agreed-upon fees and meet certain contractual terms. Daggie's:

Correct AnswerverifiedShow Answer

A distinguishing feature of a cooperative is that it:

Correct AnswerverifiedShow Answer

When entering into a new partnership, a good strategy is to:

Correct AnswerverifiedShow Answer

The __________ is the most common form of business ownership.

Correct AnswerverifiedShow Answer

Stock options are the right to purchase shares of the corporation for a fixed price.

Correct AnswerverifiedShow Answer

Jenna plans to invest in a cleaning service franchise called Spare Time. At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

Correct AnswerverifiedShow Answer

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Correct AnswerverifiedShow Answer

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