22) It typically requires at least ________ years to develop a company worth harvesting.
A) Ten
B) Five
C) Two
D) Twenty
E) Eight
Learning Obj.: LO 3
AACSB: Analytical thinking
23) If you buy a McDonalds franchise and agree to pay a royalty fee of 12.5% annually, how
much money will you owe McDonalds at the end of a year in which you sell $98,000 of product?
A) $12,250
B) $13,250
C) $11,250
D) $10,250
E) $14,250
Learning Obj.: LO 2
AACSB: Analytical thinking
24) A ________ is a business that markets a product or service in the exact manner prescribed by
the person who developed the business.
A) Franchise
B) Licensee
C) Portfolio extension
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
25) Ways to value a business include comparison to other firms, benchmarking, or looking at a
multiple of net earnings. Any of the methods is an attempt to arrive at a ________.
A) Fair market value
B) Future value
C) Most profitable price
D) Net present value
E) Gross profit
Learning Obj.: LO 4
AACSB: Analytical thinking
7
26) A disadvantage of harvesting cash over time as an exit strategy is ________.
A) It can take a long time to complete
B) The owner doesn’t have to look for a buyer
C) The managers find out what the company is really worth
D) You might get less money
E) All of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
27) Licensors must be careful that a licensee ________.
A) Doesn’t damage the licensing company’s name
B) Controls every aspect of the licensor’s business
C) Doesn’t go out of business
D) Follows all procedures of the licensor
E) Franchises the brand to as many others as possible
Learning Obj.: LO 2
AACSB: Analytical thinking
28) A license is ________.
A) The right to use a name or image on a product
B) The right to sell knockoffs of a product
C) The right to sell duplicates of a product
D) The right to start a business and run it exactly as the licensor wants it run
E) The same as a franchise
Learning Obj.: LO 2
AACSB: Analytical thinking
29) Harvesting options include ________.
A) An IPO
B) Increasing cash flows and a management buyout
C) Merging
D) Being acquired
E) All of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
8
30) Merging or being acquired ________.
A) Can be an emotionally draining experience and take over a year
B) Is typically a quick and emotionless process
C) Is typically concluded within a few weeks
D) All of the above
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
31) In most industries, twenty or thirty key benchmarks are used to help value a business.
Learning Obj.: LO 4
AACSB: Analytical thinking
32) An initial public offering (IPO), or going public, will mean selling shares of your company in
the stock market.
Learning Obj.: LO 5
AACSB: Analytical thinking
33) A way to replicate a business formula is through selling.
Learning Obj.: LO 1
AACSB: Analytical thinking
34) Adidas with its athletic shoes have applied their brand to expansion products such as Adidas
cologne, getting profitable results.
Learning Obj.: LO 1
AACSB: Analytical thinking
35) Harvesting your business means that you sell it, take it public, or merge with another
company.
Learning Obj.: LO 3
AACSB: Analytical thinking
9
36) An acquisition and a merger are the same thing.
Learning Obj.: LO 5
AACSB: Analytical thinking
37) An employee stock ownership plan (ESOP) provides an employee retirement plan and allows
the entrepreneur and partners to sell their stock and exit the company.
Learning Obj.: LO 5
AACSB: Analytical thinking
38) Most business plans’ exit strategies estimate that going public will happen within just four
years from the launch date. This is a realistic plan and timeframe.
Learning Obj.: LO 4
AACSB: Analytical thinking
39) Line extension can work if the brand is strong and the new product is not completely
dissimilar to the original.
Learning Obj.: LO 1
AACSB: Analytical thinking
40) Franchising and licensing are called replication strategies because they are ways to obtain
money from a business you created by letting others copy or replicate it.
Learning Obj.: LO 1
AACSB: Analytical thinking
41) The multigenerational family-owned-and-operated business best exemplifies the company
that provides an opportunity to “grow and go.”
Learning Obj.: LO 1
AACSB: Analytical thinking
42) An advantage of the harvesting option Increase the free cash flow is that it can take a long
time to execute this exit strategy.
Learning Obj.: LO 5
AACSB: Analytical thinking
10
43) Book value is one of the most common methods for computing a company’s valuation.
Learning Obj.: LO 4
AACSB: Analytical thinking
44) Diversification is the addition of product or service offerings beyond your core product or
service.
Learning Obj.: LO 1
AACSB: Analytical thinking
45) The franchisor owns the restaurant and agrees to market the food under the McDonalds name
and trademark in the exact fashion developed by Kroc.
Learning Obj.: LO 2
AACSB: Analytical thinking
46) Why is it not a good idea to tell investors in your business plan that your exit strategy is
simply “to take the business public”?
Learning Obj.: LO 5
AACSB: Analytical thinking
47) What are the drawbacks of a franchising agreement to the franchisor?
Learning Obj.: LO 2
AACSB: Analytical thinking
11
48) What is an MBO and what are its advantages?
Learning Obj.: LO 5
AACSB: Analytical thinking
49) Explain growth by diversification.
Learning Obj.: LO 1
AACSB: Analytical thinking
50) Describe three simple methods that can be used to estimate a selling price for a business:
Learning Obj.: LO 4
AACSB: Analytical thinking
12