Question 1

To effectively use operating ratios, a prospective buyer should ______.
A) compare them to industry standards
B) use them to identify problems that exist and make changes
C) use them as a basis for valuing the business
D) compare them to the closest competitor

Accepted Answer

The answer of To effectively use operating ratios, a prospective...

Question 2

A method of determining the value of a business based on the worth of its assets is called ______.
A) balance sheet method of business valuation
B) asset method of business valuation
C) income statement method of valuation
D) cash-flow method of valuation

Accepted Answer

The answer of A method of determining the value of...

Question 3

Assets that a business owns that can be seen and examined are known as ______.
A) intangible assets
B) tangible assets
C) long-term equity
D) accounts payable

Accepted Answer

Tangible assets are physical assets that can be seen and touched, such as machinery, buildings, and vehicles, which a business owns.

Question 4

Samantha was in the final stages of selling her existing business, but she backed out of the deal at the last minute because the buyer asked her to sign a contract stating that she would not enter into a similar business within the state for at least 15 years. This is an example of ______.
A) a reasonable intellectual property contract
B) an unreasonable intellectual property contract
C) a reasonable noncompete clause
D) an unreasonable noncompete clause

Accepted Answer

Noncompete clauses are designed to prevent individuals from entering into direct competition with a business after leaving or selling it. A 15-year restriction within the entire state is generally considered excessive and unreasonable, as it significantly limits the individual's ability to earn a livelihood in their field of expertise.

Question 5

Of all the tangible assets of a business, ______ and ______ should be examined most closely because they may be worth less than the seller is asking.
A) inventories; equipment
B) receivables; inventory
C) equipment; receivables
D) inventories; receivables

Accepted Answer

Inventories and equipment should be examined closely because their actual value can differ significantly from the seller's asking price due to factors like obsolescence, damage, or market demand.

Question 6

Which of the following by itself could be a reason a business owner wants to sell a business?
A) inventory that is fresh and balanced
B) accounts receivable that are 60 days old or older
C) the outlived usefulness of equipment
D) accounts receivable that are 30 days old or older

Accepted Answer

The outlived usefulness of equipment could be a reason to sell a business, as it may indicate the need for significant investment in new equipment, which the owner may not want to undertake.

Question 7

Aging accounts receivable refers to the process of ______.
A) determining their present value
B) determining their effect on sales
C) determining how many are still collectible and discounting them accordingly
D) determining future customer lists

Accepted Answer

Aging accounts receivable involves categorizing receivables by their age to estimate the likelihood of collection, which helps in assessing their collectibility and making necessary adjustments, such as discounts for doubtful accounts.

Question 8

Along with purchasing a successful ice cream shop, Wilma acquired the building, as well as ice cream making equipment and enough inventories to operate for a month. These are best known as what type of assets?
A) short-term assets
B) tangible assets
C) long-term assets
D) intangible assets

Accepted Answer

The building, ice cream making equipment, and inventories are all physical items that can be touched, making them tangible assets.

Question 9

A provision that restricts the seller from entering the same type of business within a specified area for a certain amount of time is known as ______.
A) due disclosure
B) a good cause clause
C) a noncompetitive clause
D) just disclosure

Accepted Answer

A noncompetitive clause, also known as a non-compete clause, restricts the seller (or sometimes an employee) from entering into or starting a similar profession or trade in competition against the buyer (or employer) within a specified area for a certain period of time.

Question 10

Rob is selling a business with machinery that has been protected from unauthorized use or infringement for the next three years. What type of intangible asset does this involve?
A) goodwill
B) trademark
C) patent right
D) copyright

Accepted Answer

Patent rights grant the owner exclusive rights to use, make, sell, or distribute the invention or discovery for a certain period of time, typically 20 years from the filing date, which aligns with the protection described for the machinery.

Question 11

Assets that have value to a business but are not visible are known as ______.
A) intangible assets
B) tangible assets
C) long-term assets
D) current assets

Accepted Answer

Intangible assets are assets that have value to a business but are not physical in nature, such as patents, trademarks, and goodwill. Tangible assets, on the other hand, are physical items like machinery or buildings. Long-term assets can be either tangible or intangible and are used over a long period. Current assets are assets that are expected to be converted into cash within a year and can be either tangible or intangible.

Question 12

The intangible asset that allows a business to earn a higher return than a comparable business might generate with the same tangible assets is known as ______.
A) intangible assets
B) tangible assets
C) preferred merchandise lines
D) goodwill

Accepted Answer

Goodwill is the intangible asset that represents the excess earnings a business can generate over its tangible assets, compared to what a similar business might earn. It arises from factors like brand reputation, customer loyalty, and employee relations.

Question 13

Expense ratios are useful because they are ______.
A) standards or guides
B) absolute measures of profitability
C) significant in the number that is computed
D) error free

Accepted Answer

Expense ratios serve as standards or guides that help in evaluating the efficiency of a fund's management by measuring the percentage of assets used for administrative and other operating expenses.

Question 14

Few businesses that are for sale have a high amount of ______ value.
A) current asset
B) long-term asset
C) goodwill
D) equipment

Accepted Answer

Goodwill represents the value of a company's brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology. It is an intangible asset that often becomes relevant in the sale of a business, reflecting the value beyond the physical assets.

Question 15

Intellectual property is a valuable ______.
A) intangible asset
B) tangible asset
C) goodwill asset
D) current asset

Accepted Answer

Intellectual property is considered an intangible asset because it is a non-physical asset that represents value, such as patents, trademarks, copyrights, and trade secrets.

Question 16

Patents, copyrights, and trademarks protect against unauthorized use or infringements for which of the following time periods?
A) indefinitely
B) for an unknown time period
C) five to seven years
D) for a definite time and usage period

Accepted Answer

Patents, copyrights, and trademarks are granted for specific, definite time periods and have specific usage rights, after which they may expire or require renewal.

Question 17

Trade names, customer lists, and goodwill are examples of which kinds of assets?
A) intangible assets
B) tangible assets
C) only current assets
D) only long-term assets

Accepted Answer

Trade names, customer lists, and goodwill are intangible assets because they lack physical substance but provide economic benefits to the company.

Question 18

The prospective buyer should determine a price for the business by adding the value of tangible and intangible assets with the ______ potential.
A) sales
B) expenses
C) income
D) profit

Accepted Answer

The prospective buyer should consider the profit potential, as it reflects the future earnings capability of the business, which is crucial for determining its value.

Question 19

When evaluating the worth of the inventory for purchasing purposes, the primary concern should be ______.
A) whether enough inventory is currently stocked
B) good supplier relationships
C) no "dead stock" that is listed at its original value
D) fresh inventory

Accepted Answer

The primary concern when evaluating the worth of the inventory for purchasing purposes is ensuring there is no "dead stock" listed at its original value, as this can inaccurately inflate the perceived value of the inventory.

Question 20

Inventory, equipment, and building are examples of what kinds of assets?
A) intangible assets
B) tangible assets
C) only current assets
D) only long-term assets

Accepted Answer

Inventory, equipment, and building are examples of tangible assets because they have a physical form and can be touched or seen.

Quiz 6: Taking Over an Existing Business

To effectively use operating ratios, a prospective buyer should ______.

A method of determining the value of a business based on the worth of its assets is called ______.

Assets that a business owns that can be seen and examined are known as ______.

Samantha was in the final stages of selling her existing business, but she backed out of the deal at the last minute because the buyer asked her to sign a contract stating that she would not enter into a similar business within the state for at least 15 years. This is an example of ______.

Of all the tangible assets of a business, and should be examined most closely because they may be worth less than the seller is asking.

Which of the following by itself could be a reason a business owner wants to sell a business?

Aging accounts receivable refers to the process of ______.

Along with purchasing a successful ice cream shop, Wilma acquired the building, as well as ice cream making equipment and enough inventories to operate for a month. These are best known as what type of assets?

A provision that restricts the seller from entering the same type of business within a specified area for a certain amount of time is known as ______.

Rob is selling a business with machinery that has been protected from unauthorized use or infringement for the next three years. What type of intangible asset does this involve?

Assets that have value to a business but are not visible are known as ______.

The intangible asset that allows a business to earn a higher return than a comparable business might generate with the same tangible assets is known as ______.

Expense ratios are useful because they are ______.

Few businesses that are for sale have a high amount of ______ value.

Intellectual property is a valuable ______.

Patents, copyrights, and trademarks protect against unauthorized use or infringements for which of the following time periods?

Trade names, customer lists, and goodwill are examples of which kinds of assets?

The prospective buyer should determine a price for the business by adding the value of tangible and intangible assets with the ______ potential.

When evaluating the worth of the inventory for purchasing purposes, the primary concern should be ______.

Inventory, equipment, and building are examples of what kinds of assets?