Entrepreneurship and Small Business Management, 2e (Mariotti)
Chapter 2 Franchising
1) Franchises are governed by ________ laws and regulations.
A) State and federal
B) State
C) Federal
D) International
E) Federal and international
Learning Obj.: LO 4
AACSB: Application of knowledge
2) Many fees are must be paid regardless of ________.
A) Profitability
B) Cash flow
C) Sales
D) Both A and B
E) A, B, and C
Learning Obj.: LO 2
AACSB: Analytical thinking
3) Franchise operating guidelines ________.
A) Vary considerably
B) Are constant
C) Are always well defined
D) Never change
E) All of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
4) All of the following are a new type of franchising opportunity except ________.
A) Internet franchises
B) Conversion franchises
C) Co-branding franchises
D) Piggybacking franchises
E) Leapfrogging franchises
Learning Obj.: LO 3
AACSB: Analytical thinking
1
5) Any cost saving resulting from franchisee purchasing power helps to offset other costs, such
as franchise ________.
A) Fees
B) Accounting
C) Gains
D) Losses
E) Overhead
Learning Obj.: LO 2
AACSB: Analytical thinking
6) Which of the following is not an ongoing cost of franchises?
A) Start-up fees
B) Royalties
C) Top-line revenues
D) Cooperative advertising fees
E) All of the above are ongoing costs.
Learning Obj.: LO 2
AACSB: Analytical thinking
7) Franchisees may pay a fee that is separate from the royalty fee, often called a ________, to
contribute to a shared advertising fund.
A) Cooperative advertising fee
B) Cooperative franchising fee
C) Cooperative marketing fee
D) Cooperative print fee
E) Cooperative media fee
Learning Obj.: LO 2
AACSB: Analytical thinking
8) The franchisor cannot require the individual franchisee to adhere to a(n) ________.
A) Pricing structure
B) Advertising agreement
C) Supplier agreement
D) Operating structure
E) Product line
Learning Obj.: LO 2
AACSB: Analytical thinking
2
9) Which of the following is true regarding the costs of franchises?
A) They vary significantly.
B) They are always expensive.
C) They are unaffordable.
D) They are outrageous.
E) They are unreasonable.
Learning Obj.: LO 2
AACSB: Analytical thinking
10) Start-up standards required of franchisees may include which of the following?
A) Specific types of experience and skills
B) Net worth requirements
C) Liquidity requirements
D) All of the above
E) None of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
11) Which of the following is not a type of franchising according to the text?
A) Product and trade-name franchising
B) Business-format franchising
C) Inclusive franchising
D) All of the above are types of franchising.
E) None of the above is a type of franchising.
Learning Obj.: LO 1
AACSB: Analytical thinking
12) The most significant advantage of a franchise is the increased probability of ________, given
that franchise brands have positive track records and instant recognition in most communities.
A) Success
B) Failure
C) Popularity
D) Optimism
E) Regret
Learning Obj.: LO 2
AACSB: Analytical thinking
3
13) Performing due diligence may include ________.
A) Fully understanding the FDD of the franchise company
B) Calling on existing franchisees
C) Visiting the franchise headquarters
D) Doing Internet research
E) All of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
14) The FDD includes information such as ________.
A) Fees and costs
B) Contractual obligations
C) Territory
D) Data regarding existing units
E) All of the above
Learning Obj.: LO 4
AACSB: Application of knowledge
15) Products and services in a franchise may not be altered, added, or dropped without
________.
A) Franchisor agreement
B) Termination of the franchise
C) Penalty
D) Legal action
E) An act of God
Learning Obj.: LO 2
AACSB: Analytical thinking
16) In relation to franchising advantages, you purchase the use of the company’s logo, trademark,
and advertising, as well as the physical design, layout, and décor that ensure ________.
A) Recognition
B) Consistency
C) Uniformity
D) Unity
E) All of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
4
17) The term “FDD” stands for which of the following?
A) Franchise Disclosure Document
B) Franchisee Disclosure Document
C) Franchisor Disclosure Document
D) Federal Disclosure Document
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
18) All of the following are factors of franchise cost except ________.
A) Type of franchise
B) Brand recognition
C) Popularity
D) Capacity to secure franchisees
E) Type of product
Learning Obj.: LO 2
AACSB: Analytical thinking
19) Which of the following is true regarding inspections conducted by franchisors?
A) They may be announced or unannounced.
B) They are always surprise inspections.
C) Specific times must be scheduled.
D) It is unlawful to do such inspections.
E) Very few franchisors do inspections.
Learning Obj.: LO 2
AACSB: Analytical thinking
20) According to the text, which of the following is not a consideration when selecting a
franchise?
A) Self-reflection
B) Research
C) Geography
D) Gender
E) Brand
Learning Obj.: LO 5
AACSB: Reflective thinking
5
21) Subway restaurants can be found ________.
A) In traditional stand-alone units
B) In convenience stores
C) In shopping malls
D) In military bases
E) All of the above
Learning Obj.: LO 1
AACSB: Application of knowledge
22) Strong franchisors have all of the following except ________.
A) Established multiple franchises
B) Positive relationships with their franchisees
C) Years of experience
D) Many legal disputes
E) None of the above is an exception.
Learning Obj.: LO 2
AACSB: Analytical thinking
23) In many instances, products or ingredients in a franchise must be purchased from ________.
A) The franchisor
B) Designated suppliers
C) Any suppliers
D) Both A and B
E) All of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
24) Which of the following aspects would the franchisor control in a business-format franchising
situation?
A) Accounting
B) Marketing
C) Operations
D) Quality assurance
E) All of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
6