Deck 14: Accessing Resources for Growth From External Sources

Question 1

When an entrepreneur bootstraps the purchase of a company,the entrepreneur usually puts down 10 to 20 percent in cash,financing the remainder of the price with long-term debt paid back through the company's earnings.

Answer 1

True

Question 2

To be successful the partners in a joint venture should have symmetry.

Answer 2

True

Question 3

A joint venture is a separate entity that involves a partnership between two or more active participants.

Answer 3

True

Question 4

Brokers for acquisitions represent the buyer,not the seller.

Question 5

Synergy is defined as "the intangible benefits of mergers and acquisitions."

Question 6

The drawbacks usually outweigh the benefits of establishing international joint ventures.

Question 7

When an entrepreneur bootstraps the purchase of a company,none of the price of the acquisition is cash.

Question 8

A joint venture is the purchase of an entire company,or part of a company.

Question 9

One advantage to an acquisition is that there is an established customer base.

Question 10

One disadvantage to an acquisition is that they are often a slow way to expand.

Question 11

Popular reasons to merge include protection,diversification,and survival.

Question 12

Cultural differences between international joint venture partners can create management difficulties.

Question 13

Most ventures that are up for sale have good to very successful profit records.

Question 14

Lack of synergy is one of the most frequent causes of an acquisition's failure to meet its objectives.

Question 15

Often,when a business changes hands,key employees move into the acquiring company.

Question 16

The most common type of joint venture is between two or more public sector companies.

Question 17

The U.S.Department of Justice frequently issues guidelines for different types of mergers.

Question 18

The two most common means of acquisition are the entrepreneur's direct purchase of the firm's entire stock or assets or the bootstrap purchase of these assets.

Question 19

An acquisition is the purchase of a company,or part of a company,in which the acquired company ceases to exist independently.

Question 20

International joint ventures are decreasing in popularity.

Question 21

A key concern in any merger or acquisition is the legality of the purchase.

Question 22

Most leveraged buyouts use the same standardized financial package.

Question 23

A common procedure for determining a merger's value is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger.

Question 24

A new franchisee can be expected to be required to undergo considerable training on operating the business.

Question 25

The Federal Trade Commission requires franchisors to make full presale disclosure of about 20 separate aspects of a franchise offering.

Question 26

One advantage of franchising is that the entrepreneur usually enters into a business that has an accepted name and product.

Question 27

In evaluating an LBO's asking price,an entrepreneur can use subjective measures such as evaluating the abilities of key personnel remaining with the firm.

Question 28

Terminating a franchise results in more lawsuits than any other issue in franchising.

Question 29

By buying a franchise,the entrepreneur reduces the amount of money available for advertising.

Question 30

The most common type of franchise is the dealership.

Question 31

The integration task phase of negotiation explores mutual benefits for the parties.

Question 32

In a leveraged buyout,the entrepreneur uses equity funds to purchase an existing venture for cash.

Question 33

In evaluating the potential profit for a new franchise,the entrepreneur should request data from the franchisor so they can develop pro forma income and cash flow statements.

Question 34

Growing a venture through franchising allows the venture to expand quickly using little capital.

Question 35

For the franchisor,the capital required to expand a venture quickly is more than it would be without franchising.

Question 36

In most leveraged buyouts,the equity usually exceeds the debt capital equity by 5:1.

Question 37

If a franchise looks good as an investment,the entrepreneur may request a franchise package from the franchisor at no cost,which usually contains a draft franchise agreement or contract.

Question 38

Franchising allows the franchisor to benefit from economies of scale in purchasing.

Question 39

Franchising involves payment of royalties in exchange for exclusive distribution rights.

Question 40

Quantitative methods of analyzing the fairness of an LBO's asking price include price-earnings ratios,present value of future earnings,and book value.

Question 41

When negotiating,the entrepreneur should make only one offer and stick to it.

Question 42

Which of the following would be an advantage of an acquisition

A) Established customer base
B) Customer familiarity with location
C) Existing employees
D) Success record

Question 43

Negotiating how the benefits of the relationship will be allocated between the parties is known as the distribution task.

Question 44

Most ventures that are available for sale:

A) are undervalued.
B) lack established location.
C) have a marginal or unprofitable track record.
D) are listed on the stock market.

Question 45

The reservation price is the price at which the entrepreneur is ready to accept the agreement.

Question 46

The most common type of joint venture is:

A) international joint ventures.
B) created for cooperative research.
C) an industry-university agreement.
D) between two or more private sector companies.

Question 47

The concept that "the whole is greater than the sum of its parts" is known as:

A) the price earnings ratio.
B) synergy.
C) the bargaining zone.
D) integration.

Question 48

Joint ventures can involve a wide variety of partners,which can include:

A) the federal government.
B) business rivals.
C) traditional businesses.
D) All of the answers are correct.

Question 49

The best way to "increase the size of the pie" in negotiation is to use a conflict resolution approach.

Question 50

Which of the following are not factors in the success of joint ventures according to the text

A) Chemistry and symmetry
B) Symmetry and reasonable expectations
C) Finance and education
D) Timing and chemistry

Question 51

Negotiating parties will often focus on the distribution task and ignore the integration task.

Question 52

The bargaining zone is the range of outcomes between the entrepreneur's reservation price and the reservation price of the other party.

Question 53

Which of the following is the most significant advantage of an acquisition according to the text

A) Established image and track record
B) Location
C) Cost
D) Existing employees

Question 54

In order for a joint venture to be successful:

A) the expectations of the results must be reasonable.
B) there should be symmetry between the partners.
C) the timing must be right.
D) All of the answers are correct.

Question 55

The bootstrap purchase of assets:

A) is a direct purchase of the entire assets of a firm.
B) means the entrepreneur purchases a small percentage of a firm for cash.
C) frequently results in a long-term capital gain to the seller.
D) results in double taxation.

Question 56

A ________ is a separate entity that involves a partnership between two or more active participants.

A) merger
B) franchise
C) joint venture
D) leveraged buyout

Question 57

One method of expanding a business is the purchase of an entire company or part of it so that the entity is completely absorbed and no longer exists as a separate company.This is called:

A) a joint venture.
B) an acquisition.
C) a subsidiary.
D) a takeover.

Question 58

By understanding more about the other party,the entrepreneur has a greater opportunity to achieve integration in negotiation.

Question 59

Which of the following statements is typically not true of industry-university joint venture agreements

A) Neither party wants to share the research results.
B) Both parties want to share in any possible financial returns from a resulting patent.
C) The corporation has the objective of obtaining tangible results, such as a patent.
D) Industry-university joint venture agreements are created for the purpose of doing research.

Question 60

Joint ventures are sometimes called:

A) mergers.
B) strategic alliances.
C) acquisitions.
D) leveraged buyouts.

Question 61

Which of the following statements about locating acquisition candidates is not true

A) Entrepreneurs can acquire another business through a broker.
B) Brokers represent the acquisition buyer or the seller.
C) Accountants, attorneys, or bankers may know of good acquisition candidates.
D) Entrepreneurs may find acquisition candidates in the classified sections of the newspaper.

Question 62

In a leveraged buyout,the entrepreneur wants to raise as much of the capital needed as possible in the form of long-term debt.This makes it particularly critical for the entrepreneur to assess the firm's

A) debt capacity
B) financial package
C) competitive position in the industry
D) market loss

Question 63

A common procedure to determine the value of a merger candidate is to estimate the present value of ________ and the expected after-tax earnings attributable to the merger.

A) future cash flows
B) potential profit
C) expected pretax earnings
D) discounted cash flows

Question 64

A ________ is an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.

A) joint venture
B) franchise
C) merger
D) leveraged buyout

Question 65

Which of the following is not an advantage of franchising to the franchisee

A) No entry cost
B) Availability of management expertise
C) Product acceptance
D) Knowledge of the market

Question 66

A ________ occurs when an entrepreneur or an employee group uses borrowed funds to purchase an existing venture for cash.

A) leveraged buyout
B) merger
C) franchise agreement
D) integrated task

Question 67

Franchisees usually contribute ________ of sales to an advertising pool.

A) None, each franchisee pays for their own advertising
B) 1-2 percent
C) 4-5 percent
D) 8-10 percent

Question 68

An unproven franchise:

A) requires the franchisee to make a larger investment than a proven one.
B) is less risky than a proven one.
C) offers less excitement and challenge than a proven one.
D) could see constant reorganization that could result in confusion and mismanagement.

Question 69

The disclosure document provided by the franchisor:

A) is required by the FTC.
B) will state a guaranteed yearly return for the franchisee.
C) is done on a voluntary basis.
D) has information that is certified by a CPA and the FTC so it is always a reliable source of data.

Question 70

Which of the terms in a franchise agreement is the most likely cause of a lawsuit

A) Termination
B) Exclusivity of territory
C) Schedule of payments
D) Initial price of the franchise

Question 71

Which franchise below is an example of the most popular type of franchise

A) KFC
B) A Ford dealership
C) H&R Block
D) Real estate franchises

Question 72

Which statement about capital requirements in franchising is not true

A) Franchisees pool monies to lower the costs for advertising and sales promotion.
B) Most franchisors will offer managerial assistance on the basis of need upon the start of the franchisee.
C) Newsletters and other publications reflecting new ideas and developments are continuously sent to franchisees.
D) The franchisee has to spend resources to establish the credibility of the business.

Question 73

Protection against an unwarranted takeover,technical obsolescence,or protection against market encroachment,are some of the reasons why a company would opt for

A) merger.
B) acquisition.
C) leveraged buyouts.
D) lease.

Question 74

Franchising opportunities have often evolved from changes in the environment as well as important social trends.Which is not one of the factors responsible discussed in the textbook

A) Good health
B) Convenience
C) Acceptance of different cultures
D) The second baby boom

Question 75

Which of the following was not a recommended method of evaluating the potential market for a new franchise in the text

A) Evaluate traffic flow in the area
B) Hire a marketing firm to survey foot traffic near the proposed location
C) Locate competitors and their proximity to the proposed franchise location
D) Evaluate demographics in the area

Question 76

In most ________,the debt capital usually exceeds the equity by a ratio of 5:1.

A) mergers
B) leveraged buyouts
C) hostile takeovers
D) franchises

Question 77

Which of the following is not a subjective technique an entrepreneur can use to evaluate the asking price of an LBO

A) The competitive position of the firm within its industry
B) The uniqueness of the firm's offerings
C) Price-earnings ratio
D) The abilities of management and other key personnel

Question 78

Which of the following would be a quantitative way to ascertain the fairness of an LBO's asking price

A) Price-earnings ratio
B) Book value
C) Present value of future earnings
D) All of the answers are correct.

Question 79

The best negotiated outcomes likely arise from ________,where the parties find mutually beneficial trade-offs.

A) distribution
B) conflict resolution
C) integration
D) assessment

Question 80

Acquisitions are so similar to ________ that at times the two terms are used interchangeably.

A) leveraged buyouts
B) joint ventures
C) mergers
D) franchises.