Question 1

A cooperative is simply another name for a corporation.

Accepted Answer

A cooperative is a distinct legal entity from a corporation. While both involve a group of people coming together for a common purpose, cooperatives are owned and democratically controlled by their members, with a focus on meeting the needs of those members, rather than generating profits for shareholders.

Question 2

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Accepted Answer

This statement is not entirely true. While high costs of operations in global markets can be a barrier to entry for some franchisors, others have successfully expanded their franchises globally through various strategies such as adapting their business model to local market conditions, partnering with local investors, and establishing supply chain efficiencies. Therefore, while global franchising may not experience major growth for all franchisors, it is not a blanket statement that applies to the entire industry.

Question 3

If a franchisee decides he wants out of the business,he is free to close-up shop or sell the business,just as if he were a sole proprietor or partnership outside of a franchise arrangement.

Accepted Answer

The answer of If a franchisee decides he wants out...

Question 4

Alex's uncle recently passed away and left him an American Dream Real Estate franchise business.Alex is not a licensed agent or broker,nor does he know anything about the real estate business.He plans to sell his American Dream franchise to his friend,Derek who recently got his real estate license.One of the advantages of owning a franchise is that you can decide to sell-out to anyone you believe is suitable for the business.

Accepted Answer

The answer of Alex's uncle recently passed away and left...

Question 5

If a firm is advertising that it is selling franchise opportunities,the prospective franchisee can be assured that the government has performed due diligence on this company,and has deemed it a safe investment.

Accepted Answer

The fact that a firm is advertising franchise opportunities does not necessarily mean that it has been vetted by the government or is a safe investment. Prospective franchisees should always conduct their own research and due diligence before investing in a franchise.

Question 6

Marilyn paid a sizeable franchise fee to obtain a Fontmaster Printers franchise in Cleveland,Ohio.With the franchise fee behind her,she can look forward to using her creative talents to make her print shop different and more attractive than other Fontmaster shops in the Cleveland are
A.

Accepted Answer

The answer of Marilyn paid a sizeable franchise fee to...

Question 7

In a typical franchise agreement,the franchisor pays the franchisee a fee to manage its company,and the two of them split the profits based on the percentages established in the agreement.

Accepted Answer

In a typical franchise agreement, the franchisee pays a fee to the franchisor for the right to use the franchisor's business model, brand name, and products/services. The franchisee then manages and operates the franchise, keeping the profits after paying the franchisor royalties or a percentage of sales as outlined in the agreement.

Question 8

Liam owns a Far Horizons Travel Agency franchise.As a franchisee,Liam is guaranteed the right to retain all of his franchise's revenues and profits.

Accepted Answer

While Liam is allowed to keep a percentage of his franchise's revenues and profits, he must also pay a percentage of these profits and revenues to the franchisor in the form of royalties and fees.

Question 9

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks and mortar franchisee businesses.

Accepted Answer

Franchisors may pay reverse royalties to franchisees if their Internet sales have negatively impacted the profits of traditional franchisee businesses.

Question 10

About 15 years ago,a well-known franchised food chain was brought to its knees when several customers got sick from tainted beef.Although the food chain recovered due to its quick and consistent action,several franchisees sued the parent company for loss of sales.The franchisees experienced the coattail effects of the bad publicity this event received.

Accepted Answer

The statement correctly describes how franchisees were affected by the tainted beef incident.

Question 11

If an established franchisor agrees to provide you the opportunity to become a franchisee in its franchise system,the franchisor may also be willing to serve as a source of financing for your operation.

Accepted Answer

It is true that some franchisors may offer financing options to their franchisees, although this is not guaranteed and may vary based on the specific franchise system and the individual franchisee's financial situation.

Question 12

Franchising in global markets has demonstrated that high operating costs are counterbalanced by high profit opportunities.

Accepted Answer

Franchising in global markets, despite high operating costs, has the potential to generate high profits for franchisees. This is because franchisors provide a proven business model, training, and ongoing support, while franchisees benefit from established brand recognition and economies of scale. Additionally, local market conditions and cultural factors can play a significant role in the success of a franchise in a global market.

Question 13

Maria is already a successful franchisee with Nite Lite,a chain of "no frills" motels that provide clean rooms and good service at affordable rates.The motel she currently operates is located in Texas,but she is considering an opportunity to open another Nite Lite motel in Canad
A.Although her costs of operating in a foreign nation may be higher,she has the benefit of an expanding market and less competition.

Accepted Answer

Maria may face higher operational costs in Canada due to factors like currency exchange rates and different regulations, but she could benefit from an expanding market and potentially less competition if the Nite Lite brand is not yet well-established there.

Question 14

It is correct to say that if a franchisor expects a 6% royalty fee on revenue,the franchisor earns 6 cents on each dollar of revenue the franchisee generates.

Accepted Answer

This statement is correct. To calculate the amount of royalty fee the franchisor earns on each dollar of revenue generated by the franchisee, you simply multiply the percentage (6%) by the revenue generated (1 dollar), which equals 0.06 dollars or 6 cents.

Question 15

Leanne,a franchisee runs a chain of small restaurants with a well-known name.Due to her hard work and people skills,her locations are doing quite well.She has noticed that several other franchisees in the same franchise system have let their restaurants deteriorate,especially in terms of lack of upgrades.Leanne should be concerned about this trend,since it eventually could affect her own business.

Accepted Answer

Leanne should be concerned about this trend because negative perceptions of the franchise as a whole could lead to potential customers avoiding all locations, including hers, even if her own restaurants are doing well. Additionally, if the franchise system as a whole is struggling, it could lead to higher fees or other negative effects that could impact Leanne's business.

Question 16

According to the Thinking Green box,"Play Ball but Play Green",high profile sports franchises are serious about the environment.The new Washington Nationals stadium is LEED Leadership in Energy and Environmental Design)certified.

Accepted Answer

The statement in the Thinking Green box is true. The Washington Nationals stadium is LEED certified.

Question 17

The financial advantage to the parent company the franchisor)in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

Accepted Answer

The upfront franchise fee and the continuous collection of royalties based on the franchisee's sales are two main sources of financial advantage for the franchisor in a franchise arrangement.

Question 18

Your friend,Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too.Although you lack expertise in graphic design or html programming,this should be a safe investment since it is already advertised as a franchise system.It's probably too good to pass up.

Accepted Answer

Just because something is advertised as a franchise system doesn't automatically make it a safe investment. As an investor, it's important to do thorough research on the company, its management, its financials, and its competition before making any investment decisions. Just because your friend is excited about it doesn't mean it's a good investment for you.

Question 19

Although franchise arrangements are a good source of income for the franchisee,these businesses do not contribute significantly toward job creation.

Accepted Answer

Franchise arrangements can result in job creation, as franchisees often hire employees to work at their location(s).

Question 20

Joshua wants to run his own business.A friend suggested that an inexpensive way to get started is to buy a franchise,where he will have the freedom to run it exactly as he sees fit.As a recent student of business,you concur with this advice.

Accepted Answer

Buying a franchise does not provide complete freedom to run the business as one sees fit. Franchise owners are bound by the rules and regulations set forth by the franchisor, and may face penalties if they deviate from them. Additionally, franchise fees, royalties, and other costs can add up quickly, making it a potentially expensive way to start a business.

Quiz 5: How to Form a Business