Deck 14: Accessing Resources for Growth From External Sources

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

International joint ventures are decreasing in popularity.

Question 6

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

Question 7

Popular reasons to merge include protection,diversification and survival.

Question 8

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

Question 9

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 10

Brokers for acquisitions represent the buyer,not the seller.

Question 11

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.

Question 12

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

Question 13

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

Question 14

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 15

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

Question 16

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

Question 17

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

Question 18

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

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

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

Question 21

An unproven franchise is not a suitable investment for an entrepreneur.

Question 22

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 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

The most common type of franchise is the dealership.

Question 38

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

Question 39

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

Question 40

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

Question 41

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.

Question 42

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.

Question 43

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 44

The ______ frequently issues guidelines for mergers.

A)SBDC
B)Department of Justice
C)Supreme Court
D)United States Senate

Question 45

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.

Question 46

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.

Question 47

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 48

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 49

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 50

Joint ventures can involve a wide variety which include:

A)universities.
B)not-for-profit organizations.
C)traditional businesses.
D)all of the above.

Question 51

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

Question 52

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 53

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 54

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

Question 55

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

Question 56

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 57

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.

Question 58

Joint ventures are sometimes called:

A)mergers.
B)strategic alliances.
C)acquisition.
D)leveraged buyout.

Question 59

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

Question 60

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 61

The person offering the franchise is known as the:

A)franchisor.
B)endower.
C)franchisee.
D)franchise.

Question 62

________ 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

Question 63

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.

Question 64

Which if 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 65

The person who purchases the franchise is the:

A)business architect.
B)franchisor.
C)franchisee.
D)franchise.

Question 66

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%

Question 67

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

Question 68

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

Question 69

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?

Question 70

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.

Question 71

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 72

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

Question 73

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

Question 74

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

Question 75

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 76

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.

Question 77

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.

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 above

Question 79

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 80

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