Quiz 14: Accessing Resources for Growth From External Sources

Idea lab is a combination of an incubator,a venture capitalist,and a business angel.

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

International joint ventures are decreasing in popularity.

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

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

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

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

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

Some acquisitions are motivated more by the CEO's ego than by the return on investment.

Synergy is when the whole is the aggregate of all of its parts.

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

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

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

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

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.

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

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

Brokers for acquisitions represent the buyer,not the seller.

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

Popular reasons to merge include protection,diversification and survival.

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

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.

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

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

In evaluating an LBO's asking price an entrepreneur can use qualitative measures such as evaluating the abilities of key personnel.

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

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

One important advantage of buying a franchise is that the entrepreneur incurs no risk.

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

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

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

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

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

The most common type of franchise is the dealership.

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.

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

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

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

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.

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

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

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

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

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

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

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

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

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

Joint ventures can involve a wide variety which include: A)universities. B)not-for-profit organizations. C)traditional businesses. D)all of these.

Joint ventures are sometimes called: A)mergers. B)strategic alliances. C)acquisition. D)leveraged buyout.

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.

Which of the following is(are)not an advantage of an international joint venture? A)Complimenting governmental policies. B)The ease of developing common business objectives. C)Ready access to international markets. D)Cultural synergy.

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.

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 above.

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)take over.

Which of the following would be an advantage of an acquisition? A)Established customer base B)Customer familiarity with location C)Existing employees D)Period of acquisition deal

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

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.

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.

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.

Product innovation,diversification,protection against market encroachment are some of the reasons why a company would opt for this: A)Merger. B)Acquisition. C)Leveraged buyouts. D)Lease.

The ______ frequently issues guidelines for mergers. A)SBDC B)Department of Justice C)Supreme Court D)United States Senate

A common procedure to determine the value of a merger candidate is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger.This can be done on all of the following levels except: A)Optimistic. B)Pessimistic. C)Probable scenarios. D)Logical scenarios.

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

The debt to capital ratio for most _____ usually exceeds the equity by a factor of 5:1. A)mergers B)leveraged buyouts C)hostile takeovers D)franchises

Which of the following is not a qualitative technique an entrepreneur can use to evaluate the asking price of an LBO? A)The competitive position of the firm B)The uniqueness of the firm's offerings C)Price-earnings ratio D)The abilities of management and other key personnel

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 above

The person offering the franchise is known as the: A)franchisor. B)endower. C)franchisee. D)franchise.

The person who purchases the franchise is the: A)business architect. B)franchisor. C)franchisee. D)franchise.

________ 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)A joint venture B)Franchising C)A merger D)A leveraged buyout

Which of the following is not an advantage of franchising? A)No entry cost B)Availability of management expertise C)Product acceptance D)Knowledge of the market

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.

Franchisees usually contribute _____ of sales to an advertising pool. A)None,each franchisee pays for their own advertising B)1-2% C)4-5% D)8-10%

Which franchise below is an example of the most popular type of franchise? A)KFC B)An automobile dealership C)H&R Block D)Real estate franchises

Franchising opportunities have often evolved from changes in the environment as well as important social trends.This is not one of the factors responsible: A)good health. B)environmental consciousness. C)acceptance of different cultures. D)the second baby boom.

An unproven franchise: A)requires the franchisee to make a larger investment than a proven one. B)is riskier than a proven one. C)offers more excitement and challenge than a proven one. D)could see constant reorganization that could result in confusion and mismanagement.

A potential franchisee should seek answers to all of the following questions while assessing the financial stability of the franchisor,except: A)How many franchises are in the organization? B)Are most of the profits of the franchise a function of fees from the sale of franchises or from royalties based on profits of franchisees? C)What are the chances of further expansion of the company? D)Does the franchisor have management expertise in production,finance,and marketing?

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

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.

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

In order to further investigate a franchise opportunity an entrepreneur can request a franchise package from the franchisor which: A)is usually free. B)costs between $400-$600 and is usually refundable. C)costs between $800-$1000 and is usually not refundable. D)contains guarantees about expected sales revenues in years 1 and 2.

In negotiations the _________ task involves how the benefits of the relationship will be allocated between the parties. A)distributive B)assessment C)integrative D)reservation

In the _________ task,the mutual benefits from the relationship are explored,making the "size of the pie" larger. A)distributive B)assessment C)integrative D)reservation

The integrative aspect of negotiation: A)focuses on decreasing the "size of the pie." B)is more beneficial than a conflict resolution approach. C)requires the entrepreneur to lower the reservation price. D)requires the negotiator to not decrease the price and not back down.

The __________ is the price at which the entrepreneur is indifferent about whether to accept the agreement or choose an alternative. A)break even price B)franchise price C)bargaining zone D)reservation price

The __________ is the range of outcomes between the entrepreneur's reservation price and the reservation price of the other party. A)reservation price B)franchise price C)bargaining zone D)break even price

Which is not a strategy that is used to elicit information about the other party in a negotiation? A)Take up a new negotiation at the end of the first. B)Ask lots of questions. C)Make multiple offers simultaneously. D)Build trust and share information.

Explain the potential issues that could occur in establishing an international joint venture.

What are the 4 major factors in joint venture success?

Discuss the main disadvantages of an acquisition. A.Marginal success record.Most ventures that are for sale have an erratic,marginally successful,or even unprofitable track record.It is important to review the records and meet with important constituents to assess that record in terms of the business's future potential. B.Overconfidence in ability.Sometimes an entrepreneur may assume that he or she can succeed where others have failed.This is why a self-evaluation is so important before entering into any purchase agreement.Even though the entrepreneur brings new ideas and management qualities,the venture may never be successful for reasons that are not possible to correct.Often managers are overconfident in their ability to overcome cultural differences between their current business and the one being acquired. C.Key employee loss.Often,when a business changes hands,key employees also leave.Key employee loss can be devastating to an entrepreneur who is acquiring a business since the value of the business is often a reflection of the efforts of the employees.This is particularly evident in a service business,where it is difficult to separate the actual service from the person who performs it.In the acquisition negotiations,it is helpful for the entrepreneur to speak to all employees individually to obtain some assurance of their intentions as well as to inform them of how important they will be to the future of the business.Incentives can sometimes be used to ensure that key employees will remain with the business. D.Overvaluation.It is possible that the actual purchase price is inflated due to the established image,customer base,channel members,or suppliers.If the entrepreneur has to pay too much for a business,it is possible that the return on investment will be unacceptable.It is important to look at the investment required in purchasing a business and at the potential profit and establish a reasonable payback to justify the investment.

Discuss the main advantages of an acquisition.

What are the main benefits (to the franchisee)of franchising?

Identify and describe the three different types of franchises. A.Dealership - a form commonly found in the automobile industry.Here,manufacturers use franchises to distribute their product lines.These dealerships act as the retail stores for the manufacturer.In some instances,they are required to meet quotas established by the manufacturers,but as is the case for any franchise,they benefit from the advertising and management support provided by the franchisor. B."Retail" - The most common type of franchise is the type that offers a name,image,and method of doing business,such as McDonald's,Subway,KFC,Midas,Dunkin'Donuts,and Holiday Inn.Note: students may identify as retail,no specific name is given for this type. C.Service - These include personnel agencies,income tax preparation companies,and real estate agencies.These franchises have established names and reputations and methods of doing business.In some instances,such as real estate,the franchisee has actually been operating a business and then applies to become a member of the franchise.

In regards to negotiation,define the following: distribution task,integration task and reservation price. Negotiating how the benefits of the relationship will be allocated between the parties Exploring possible mutual benefits from the relationship so that the "size of the pie" can be increased The price (the bundle of resources from the agreement)at which the entrepreneur is indifferent about whether to accept the agreement or choose the alternative