41) When franchise contracts are renewed:
A) the existing contract is merely annotated and signed by both parties.
B) a new UFOC must be issued.
C) all terms of the previous contract may be renegotiated.
D) a new contract must be drawn up by the two parties.
Topic: Franchise Contracts
AACSB: Analytic Skills
42) The franchiser has the right to cancel a contract if a franchisee:
A) declares a bankruptcy.
B) fails to make required payments on time.
C) fails to maintain quality standards.
D) All of the above
Topic: Franchise Contracts
AACSB: Analytic Skills
43) The fastest growth rate in franchises is among:
A) traditional areas of franchising, where costs are from $2,500 to $250,000.
B) innovative, nontraditional franchisers with fresh approaches.
C) gas stations and fast foods.
D) hotel/motels and retail outlets.
Topic: Trends in Franchising
AACSB: Analytic Skills
44) ________ franchising involves the owner of an existing business becoming a franchisee to
gain the advantage of name recognition.
A) Product distribution
B) Master franchise
C) Conversion
D) Pure
Topic: Trends in Franchising
AACSB: Analytic Skills
11
45) The most efficient method of franchising, from the franchiser’s point-of-view, which has
become popular in the 1990s and permits one franchisee to hold several franchises from the same
franchise company, is called:
A) multiple-unit franchising.
B) master franchising.
C) conversion franchising.
D) piggybacking.
Topic: Trends in Franchising
AACSB: Analytic Skills
46) Establishing a Mrs. Fields Cookies franchise inside a Hardees fast-food franchise is an
example of ________ franchising.
A) multi-unit
B) master
C) cobranding
D) conversion
Topic: Trends in Franchising
AACSB: Analytic Skills
47) When the franchisee has the right to establish a semi-independent organization in a particular
territory to recruit, sell, and support other franchises, it is called a ________ franchise.
A) multi-unit
B) piggyback
C) conversion
D) master
Topic: Trends in Franchising
AACSB: Analytic Skills
48) A master franchise is also called:
A) sub-franchise.
B) cobrander.
C) Both A and B
D) None of the above
Topic: Master Franchising
AACSB: Analytic Skills
12
49) ________ is when owners of independent businesses become franchisees to gain the
advantage of name recognition.
A) Conversion franchising
B) Multiple-unit franchising
C) Master franchising
D) Combination franchising
Topic: Conversion Franchising
AACSB: Analytic Skills
50) Perhaps the best way to evaluate the reputation of a franchiser is to ________ several
franchise owners.
A) meet
B) interview
C) write
D) Both A and B
Topic: Talk to Existing Franchisees
AACSB: Analytic Skills
51) What franchisee turnover rate is probably sound?
A) Less than 5 percent
B) Less than 15 percent
C) Less than 25 percent
D) Less than 35 percent
Topic: Franchise Turnover
AACSB: Analytic Skills
52) The ________ requires all franchisers to disclose detailed information on their operations at
the first personal meeting or at least fourteen days before a franchise contract is signed or any
money is paid.
A) FCC
B) FDD
C) Trade Regulations Rule
D) FDA
Topic: Franchising and the Law
AACSB: Analytic Skills
13
53) In franchising, royalties are paid by the franchisee to the franchisor.
Topic: What is a Franchise?
AACSB: Analytic Skills
54) By definition, a franchise is owned by a semi-independent franchisee who pays a fee to a
franchiser in return for the right to sell the franchised goods or services.
Topic: What is a Franchise?
AACSB: Reflective Thinking
55) In a franchise arrangement, the franchiser controls the distribution methods of the business
venture.
Topic: What is a Franchise?
AACSB: Analytic Skills
56) Trade name franchising involves licensing the rights to sell specific products under the
manufacturer’s brand name.
Topic: Types of Franchising
AACSB: Analytic Skills
57) The type of franchising growing fastest is product distribution franchising.
Topic: Types of Franchising
AACSB: Analytic Skills
58) Pure franchising occurs when the franchisee purchases only the right to become identified
with the franchiser’s trade name.
Topic: Types of Franchising
AACSB: Analytic Skills
59) Pure franchising involves the right to use all the elements of a fully integrated business
operation.
Topic: Types of Franchising
AACSB: Analytic Skills
14
60) Franchising benefits the franchisor by providing a quick way to expand the distribution
system and a way to grow without the cost and effort to develop managers internally.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
61) As with most franchises, the key to H&R Block’s success is the standardization of their
product, processes, etc.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
62) McDonald’s relies almost exclusively on the trade name type of franchising.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
63) When a franchisee buys a franchise, he/she is purchasing the expertise and the business
experience of the franchisor.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
64) The basic and first question an entrepreneur should ask him/herself before jumping into a
franchise is, “How much is this going to cost me?”
Topic: Benefits of Buying a Franchise
AACSB: Reflective Thinking
65) Quality is so important in franchising that most franchisers retain the right to terminate the
franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.
Topic: Benefits of Buying a Franchise
AACSB: Reflective Thinking
66) Most franchisers provide extensive financial help like loans and low-rate financing for their
franchises.
Topic: Benefits of Buying a Franchise
AACSB: Reflective Thinking
15
67) Buying a franchise prevents an entrepreneur from making many mistakes and avoids the
most inefficient type of learning—trial and error.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
68) According to experts, the most important factor in franchising is location.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
69) Most franchisors do not offer franchisees territorial protection, denying them the right to
exclusive distribution of the brand name in a particular geographic area.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
70) The failure rate for franchises is well below that for other types of new businesses.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
71) By signing the franchise contract, a franchisee typically surrenders some freedom and
autonomy in operating his/her business.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
72) The only fee that franchisers can collect from franchisees is a one-time franchise fee paid at
the outset of the relationship.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
73) In addition to other fees, franchisees must also pay royalties but only on net profits—no
profits, no royalties.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
16
74) In many franchises, strict uniformity is the rule rather than the exception.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
75) Franchisors can require franchisees to purchase materials and supplies only from approved
suppliers.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
76) Franchisees generally sell only those products or services that the franchiser has approved
but may sell complementary products as long as they aren’t a second competing franchise.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
77) Territorial encroachment is becoming a hotly contested issue as franchisers have nearly
exhausted prime locations for franchises.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
78) Independent entrepreneurs with a “go-my-own-way” attitude are ideally suited for becoming
franchisees.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
79) It is important for potential entrepreneurs to have extensive experience in the business in
which they are buying a franchise.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
17
80) The FTC Trade Regulation Rule applies to all franchisors in all states regardless of state
disclosure laws.
Topic: Franchising and the Law
AACSB: Analytic Skills
81) If a franchisor encourages you to sign without reading the agreement, or discourages you
from “spending the money on an attorney,” this is a warning sign that the franchiser might be
dishonest.
Topic: The Right Way to Buy a Franchise
AACSB: Analytic Skills
82) By the 1920s, franchising was rife with fraudulent practitioners.
Topic: Franchising and the Law
AACSB: Reflective Thinking
83) According to the Trade Regulation Rule, every franchisor must provide detailed information
on their operations at the first personal contact, or at least 14 days before a franchise contract is
signed.
Topic: Franchising and the Law
AACSB: Analytic Skills
84) The FTC verifies the accuracy of the franchise disclosure information required by the Trade
Regulation Rule.
Topic: Franchising and the Law
AACSB: Analytic Skills
85) One of the best ways for an entrepreneur to evaluate a potential franchiser is to interview
several franchise owners who have been in business at least one year.
Topic: The Right Way to Buy a Franchise
AACSB: Analytic Skills
18