Entrepreneurship and Small Business Management, 2e (Mariotti)
Chapter 21 Franchising, Licensing, and Harvesting: Cashing in Your Brand
1) A ________ represents the company’s promise to consistently deliver a specific set of benefits
to customers.
A) Product line extension program
B) Product life cycle
C) Marketing campaign
D) Quality management system
E) Brand
Learning Obj.: LO 1
AACSB: Analytical thinking
2) To take a business public means to sell its stock on the stock market. The first offering of a
business’s stock has been acronymed ________.
A) IPO
B) MPO
C) KFYR
D) FIFO
E) LIFO
Learning Obj.: LO 5
AACSB: Analytical thinking
3) Which business is an example of a franchise?
A) Burger King
B) Walmart
C) Sears
D) Federal Express
E) U.S. Postal Service
Learning Obj.: LO 1
AACSB: Analytical thinking
1
4) If you buy a franchise, you must pay a percentage of every unit you sell to the franchisor. That
percentage is called ________.
A) A royalty
B) A franchise fee
C) A commission
D) A charge
E) A payment
Learning Obj.: LO 2
AACSB: Analytical thinking
5) A brand is a combination of name, logo, and design that ________.
A) Becomes associated in the minds of consumers with the products or services of a company
B) Identifies the owner of a company
C) Expresses the philanthropic intentions of a company to consumers
D) Is cool to look at
E) Is vibrant
Learning Obj.: LO 1
AACSB: Analytical thinking
6) ________ strategies are ways to obtain money from a business you created by letting others
copy it.
A) Replication
B) Harvesting
C) Business
D) Corporate
E) Organizational
Learning Obj.: LO 1
AACSB: Analytical thinking
7) In valuing a business, the methods that buyers and sellers can use include ________.
A) Market-based value
B) Book value
C) Future earnings
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
2
8) The harvest or exit strategies set out in a business’s plan are important not only to the
entrepreneur but also to ________.
A) Investors
B) Customers
C) The IRS
D) The state
E) The church
Learning Obj.: LO 3
AACSB: Analytical thinking
9) When an entrepreneur sells his or her company to its managers, this exit strategy is called
________.
A) A management buyout
B) A management takeover
C) An acquisition
D) A merger
E) A hostile takeover
Learning Obj.: LO 5
AACSB: Analytical thinking
10) If you want to buy a business that is growing rapidly, what is the best valuation method to
use to determine a fair price for it?
A) Future earnings method
B) Book value method
C) Market-based approach
D) Comparison approach
E) Intuitive method
Learning Obj.: LO 4
AACSB: Analytical thinking
11) William Petty’s article on harvesting notes that entrepreneurs will have ________.
A) Chances to sell the business, take it public, or merge throughout the life of the business
B) Only one chance to harvest their investment in their firm
C) A chance to sell and a chance to merge, but this typically occurs within the first two years of
the life of the business
D) All of the above
E) None of the above
Learning Obj.: LO 3
AACSB: Analytical thinking
3
12) If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees
that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would
you earn in royalties?
A) $350,000
B) $450,000
C) $550,000
D) $650,000
E) $250,000
Learning Obj.: LO 2
AACSB: Application of knowledge
13) Ray Kroc and other entrepreneurs decided to focus less on profits and more on delivering
consistent ________ to customers. They found that if they could consistently deliver ________,
they could build a franchisable business. (Use the same word twice.)
A) Quality
B) Service
C) Consistency
D) Royalties
E) Fees
Learning Obj.: LO 2
AACSB: Analytical thinking
14) Which of the following is a harvest strategy, not an exit strategy?
A) Franchising
B) Merger
C) IPO (initial public offering)
D) Acquisition
E) All of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
4
15) Why are franchisees typically assigned territories?
A) So that they are not placed in direct competition with other franchises from the same
company
B) To avoid conflict with franchises from different companies
C) So they can be assigned to managers
D) All of the above
E) None of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
16) At what stage of starting and running your business should you inform investors of your exit
strategy?
A) In the business plan
B) In your first annual report
C) Shortly before selling
D) Midway through your planned number of years in business
E) Never
Learning Obj.: LO 5
AACSB: Analytical thinking
17) When Ray Kroc franchised McDonalds, what did he do that set the bar for future franchise
operations?
A) He provided training and support to franchisees to ensure that quality would be consistent in
every McDonalds restaurant.
B) He sold franchises in competing territories to encourage franchise owners to compete and
come up with new innovations for the company.
C) He made a lot of money.
D) He set the bar high.
E) He licensed the McDonalds name to a wide variety of products, such as hats and shirts.
Learning Obj.: LO 2
AACSB: Analytical thinking
5
18) One of the advantages of an Employee Stock Ownership Plan is that ________.
A) ESOPs offer tax breaks to the company
B) Employees will likely quit and leave
C) It will prevent employees from having control of the company
D) The owner will have to look for buyers in the general public
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
19) ________, or spreading out the brand among many products and product lines, can increase
market share, but it/they can also ________ the company.
A) Diversification, unfocus
B) Diversification, focus
C) Product line extension, focus
D) Alliances, focus
E) Alliances, concentrate
Learning Obj.: LO 1
AACSB: Analytical thinking
20) Benefits of franchising–for the franchisor–include ________.
A) Lower marketing and promotional costs
B) Growth with minimal capital investment
C) Royalty payments
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
21) Once you have established your brand, you can develop new products and use the brand to
promote it. This marketing strategy is called ________.
A) Line extension
B) Brand
C) Line quality
D) Line promotion
E) Set expansion
Learning Obj.: LO 1
AACSB: Analytical thinking
6