Question 1

_____________ is by far the most popular target for Canadian franchisors seeking to establish franchises in other countries.
A)The United States
B)Mexico
C)Great Britain
D)Japan

Accepted Answer

The United States is the most logical choice for Canadian franchisors seeking to establish franchises in other countries due to its proximity, cultural similarities, and shared language. It also has a large market and a well-established franchise industry.

Question 2

Continental Foods is looking at a possibility of agreeing to a conglomerate merger.A likely reason Continental may be looking at this type of merger is a desire to:
A)ensure quality control
B)supply a key ingredient needed by the company.
C)diversify its operations.
D)meet the requirements to convert to a limited liability company.

Accepted Answer

A conglomerate merger involves combining with a company in a different industry, allowing Continental to diversify its operations and potentially reduce risk. None of the other options explain why Continental would pursue this type of merger.

Question 3

The strategy of investors who are attempting a leveraged buyout is to:
A)shape up the firm for quick resale.
B)use debt to finance the purchase or buyout the firm's stockholders and gain control of the firm themselves.
C)secure ownership of all of the existing stock in the firm by issuing and selling large amounts of new stock.
D)use investment tax credits from the government to acquire all of the physical assets owned by the firm.

Accepted Answer

Leveraged buyouts involve using debt to finance the purchase or buyout the firm's stockholders and gain control of the firm themselves. This allows investors to control the company without using a significant amount of their own capital.

Question 4

When a firm is taken private,its stock is:
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.

Accepted Answer

When a firm is taken private, it means that its shares are no longer publicly traded, and are thus no longer sold to investors on the open market. The other options do not accurately represent what happens to the stock when a firm goes private.

Question 5

Trans Globe Airlines has recently looked into a merger with Royal Blue Airlines,a financially troubled rival.The firms believe the merger will create a stronger company that can offer travelers more flights to a wider variety of destinations.This proposed merger is an example of a:
A)conglomerate merger.
B)leveraged buyout.
C)horizontal merger.
D)joint venture.

Accepted Answer

This proposed merger is an example of a horizontal merger because it involves the combining of two companies in the same industry and market, both offering airline services.

Question 6

Global franchising offers:
A)few opportunities for Canadian investors.
B)opportunities for the largest franchise systems,but not small ones.
C)opportunities for both large and small franchises.
D)American firms the opportunity to market goods overseas without any need to adjust for cultural differences.

Accepted Answer

Global franchising offers opportunities for both large and small franchises, as they can expand their business worldwide and cater to a wider audience. While cultural differences may need to be considered, global franchising still presents a valuable opportunity for Canadian investors and other international entrepreneurs.

Question 7

In a leveraged buyout,the managers of a firm,its employees,or other investors attempt to:
A)move the company elsewhere and start over.
B)obtain the assets of the company through bankruptcy proceedings.
C)use borrowed funds to buy out the firm's stockholders.
D)negotiate a merger with another firm to create a conglomerate.

Accepted Answer

In a leveraged buyout, the managers of a firm, its employees, or other investors use borrowed funds to buy out the firm's stockholders. This allows the purchasers to obtain a controlling interest in the company without having to use their own funds to do so. Once the buyout is complete, the new owners can restructure the company, sell off assets, or take other actions to improve the company's financial performance.

Question 8

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.This is an example of:
A)an economic shakeout at work.
B)the coattail effect.
C)the law of diminishing returns.
D)management by exception.

Accepted Answer

The coattail effect refers to the negative impact on one franchisee's business due to the actions or failures of other franchisees within the same chain. In this case, the troubles faced by other Daggies franchisees had a cascading effect on Marco's business, leading to its eventual closure.

Question 9

One reason franchises have become so popular is that this arrangement provides the franchisee with:
A)a nationally recognized name and product.
B)a low cost way to start a business.
C)limited liability.
D)the right to retain all profits earned by their franchise.

Accepted Answer

The answer of One reason franchises have become so popular...

Question 10

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.
A)royalty
B)dividend
C)premium
D)co-pay

Accepted Answer

A royalty is the share of profits or percentage of sales that a franchisee pays to a franchisor. Dividend is a share of profits paid to shareholders, premium is the amount paid for an insurance policy, and co-pay is the portion of medical expenses that the patient pays.

Question 11

A(n)___________ is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.
A)conditional grant
B)franchise agreement
C)trade contract
D)extended ownership agreement

Accepted Answer

This is the definition of a franchise agreement, where the franchisee is granted the right to use the franchisor's business name and sell their products/services in a specific territory in exchange for fees and royalties. The other options are not applicable to this scenario.

Question 12

An evaluation of franchising would conclude that this type of arrangement:
A)has become the dominant form of business organization in Canada because it has many advantages and almost no disadvantages.
B)appeals to people who want to own a business,but are not comfortable starting a company from scratch.
C)has a much higher risk of failure than independent companies.
D)has little chance of success outside the United States because many foreign countries do not allow such arrangements.

Accepted Answer

Franchising does have advantages such as proven business models, established brand recognition, and support from the franchisor, but it also comes with restrictions and fees that can limit the franchisee's flexibility and profitability. Therefore, franchising appeals to those who want a degree of assurance and guidance in running a business without starting from scratch. Option A is not accurate as franchising also has some disadvantages. Option C is not necessarily true as franchise businesses typically have higher success rates than independent start-ups. Option D is also not accurate as franchising is a global phenomenon and many countries have laws and regulations in place to regulate it.

Question 13

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

Accepted Answer

Daggie's is operating as a franchisor, which allows individuals to buy the rights to use their name and sell their products in a specific area.

Question 14

A person who buys the right to use a business name and sell a product within a given territory is called a:
A)stockholder.
B)franchisee.
C)limited franchisor.
D)venture capitalist.

Accepted Answer

A franchisee is a person who buys the right to use a business name and sell a product within a given territory. Stockholders are owners of a company's stock, while limited franchisors are companies that only offer the use of their name without providing ongoing support. Venture capitalists are investors who provide funding to start-up companies in exchange for equity in the company.

Question 15

A __________ joins two firms in the same industry and allows them to diversify or expand their products.
A)horizontal merger
B)vertical merger
C)conglomerate merger
D)company merger

Accepted Answer

A horizontal merger joins two firms in the same industry, allowing them to diversify or expand their product lines. This type of merger typically occurs between companies that are direct competitors and can help them gain a larger market share or improve their economies of scale. Vertical mergers involve firms in different stages of the production process, and conglomerate mergers involve firms in unrelated industries. "Company merger" is a vague and nonspecific term that could refer to any type of merger.

Question 16

Franchisors will sometimes send reverse royalties to franchisees who:
A)have not yet created their own web site.
B)feel their sales have been hurt by the franchisor's Internet sales.
C)are using e-commerce to expand their sales territory.
D)desire to streamline their communication with employees,customers,and vendors.

Accepted Answer

Reverse royalties are provided to franchisees who feel their sales have been harmed by the franchisor's internet presence. This is done to counterbalance the negative impact of franchisors' online sales.

Question 17

Hair's to You,a nationwide network of hair styling salons,recently approached Flair All,Inc.,a maker of hair care products,about the potential for a merger.Many of Flair All's products are used by professional hair stylists,and Hair's to You believes that such a merger would ensure a supply of good quality products for use in its salons.If the firms do merge,it would be an example of a:
A)conglomerate merger.
B)vertical merger.
C)horizontal merger.
D)diagonal merger.

Accepted Answer

A vertical merger is when companies in the same industry, but in different stages of production, merge with each other. In this case, Flair All, Inc. is a maker of hair care products and Hair's to You is a salon network. Therefore, they are in different stages of the hair industry production chain. A vertical merger would ensure a smooth supply chain for Hair's to You and secure distribution channels for Flair All, Inc.

Question 18

Mary is interested in becoming a franchisee in Katie's Grill,a very successful fast food chain from the Canadian West.Which of the following problems is Mary most likely to encounter if she agrees to become a franchisee?
A)High initial costs and fees.
B)Poor name recognition and visibility.
C)Lack of financing.
D)Lack of managerial assistance.

Accepted Answer

Becoming a franchisee often requires a significant investment of initial costs and fees. This can include expenses such as purchasing equipment, leasing or buying a property, paying a franchise fee, and paying ongoing royalties to the franchisor.

Question 19

A(n)_____________ is someone who has a good idea for a business and who sells the right to use the business name and sell a product or service within a given territory.
A)intrapreneur
B)venturist
C)limited partner
D)franchisor

Accepted Answer

A franchisor is someone who has a successful business model and sells the right to use the business name, product, and marketing strategies to others (franchisees) in exchange for a fee or royalty. This allows the franchisor to expand their business while allowing the franchisee to own and operate their own business with the support and guidance of the franchisor.

Question 20

Mel is a major stockholder in Precision Transmission Services (PTS),a nationwide network of transmission repair shops founded by his father.Currently,PTS stock is sold on the open market,but Mel has talked to several relatives about his desire to get all of the PTS stock back in his family's hands.Mel is interested in:
A)taking the firm private.
B)a hostile takeover in the firm.
C)converting the firm to a general partnership.
D)forming a master limited partnership.

Accepted Answer

Mel's desire to get all of the PTS stock back in his family's hands suggests that he wants to have full control over the company. Taking the firm private would allow him to do that, as he would no longer have to share ownership with outside shareholders. A hostile takeover or converting the firm to a general partnership may not be feasible or legally allowed, and forming a master limited partnership would involve bringing in outside investors, which goes against Mel's goal of consolidating ownership within his family.

Quiz 6: Forms of Business Ownership

_____________ is by far the most popular target for Canadian franchisors seeking to establish franchises in other countries.

Continental Foods is looking at a possibility of agreeing to a conglomerate merger.A likely reason Continental may be looking at this type of merger is a desire to:

The strategy of investors who are attempting a leveraged buyout is to:

When a firm is taken private,its stock is:

Trans Globe Airlines has recently looked into a merger with Royal Blue Airlines,a financially troubled rival.The firms believe the merger will create a stronger company that can offer travelers more flights to a wider variety of destinations.This proposed merger is an example of a:

Global franchising offers:

In a leveraged buyout,the managers of a firm,its employees,or other investors attempt to:

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.This is an example of:

One reason franchises have become so popular is that this arrangement provides the franchisee with:

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

A(n) ___________ is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.

An evaluation of franchising would conclude that this type of arrangement:

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

A person who buys the right to use a business name and sell a product within a given territory is called a:

A __________ joins two firms in the same industry and allows them to diversify or expand their products.

Franchisors will sometimes send reverse royalties to franchisees who:

Mary is interested in becoming a franchisee in Katie's Grill,a very successful fast food chain from the Canadian West.Which of the following problems is Mary most likely to encounter if she agrees to become a franchisee?

A(n) _____________ is someone who has a good idea for a business and who sells the right to use the business name and sell a product or service within a given territory.