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42) What are the primary advantages and disadvantages to establishing a franchise system (from
the franchisor’s point of view)?
43) The What Went Wrong feature in Chapter 15 focuses on Sbarro’s, the pizza chain. One of the
main reasons for Sbarro’s failure was the ________.
A) decline in mall traffic
B) high prices of products
C) poor quality of products
D) dispute with franchisees
E) high number of franchises
44) According to the textbook, which of the following is NOT a cost that is typically associated
with buying a franchise?
A) Advertising fees
B) Continuing royalty payments
C) Trademark acquisition fee
D) Initial franchise fee
E) Capital requirements
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45) According to the textbook, a franchisee’s weekly or monthly royalty fees are typically around
________ percent of gross income.
A) 2
B) 3
C) 4
D) 5
E) 6
46) In the majority of cases, a franchisee pays the franchisor a royalty based on ________.
A) a predetermined fixed weekly or monthly amount
B) weekly or monthly net income
C) the size of the franchise outlet
D) weekly or monthly gross income
E) the age of the franchise outlet
47) Advertising fees that franchisees have to pay the franchisor are typically less than ________
percent of gross income.
A) 1
B) 2
C) 3
D) 4
E) 5
48) There are two primary advantages to buying a franchise over other forms of business
ownership. First, the franchisor typically provides training, technical expertise, and other forms
of support, and second, ________.
A) franchising is almost a sure way of making a profit
B) a franchise agreement is typically easy to exit if expectations aren’t met
C) franchisors typically encourage creativity on the part of franchisees
D) the franchisor provides an entrepreneur the ability to own a business using a tested and
refined business method
E) franchise organizations are consistently more profitable than non-franchise organizations in
the same industry
49) According to the textbook, the main disadvantage of buying a franchise is ________.
A) franchise organizations typically grow slower than non-franchise organizations in the same
industry
B) franchisors typically provide poor levels of support
C) the cost involved
D) the service sector of the U.S. economy is waning in importance
E) franchising is waning in its popularity
50) Which of the following is NOT an advantage of buying a franchise?
A) A proven product or service within an established system
B) Franchisor ongoing support
C) Availability of financing
D) Potential for business growth
E) Duration and nature of the commitment
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51) All of the following are advantages to buying a franchise except ________.
A) restrictions on creativity
B) potential for business growth
C) availability of financing
D) a proven product or service within an established market
E) franchisor’s ongoing support
52) In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or
monthly net income.
53) Franchisees are often required to pay into a national or regional advertising fund, even if the
advertisements are directed at goals other than promoting the franchisor’s product or service.
54) The royalty fees a franchisee pays are usually around four to five percent of gross income.
55) One of the most important questions a prospective franchisor should consider is whether the
fees and royalties charged by a franchisor are consistent with the franchise’s value or worth.
56) How can a person tell if franchising is right for them?
57) According to the textbook, the first rule of buying a franchise is ________.
A) asking for a copy of the franchisor’s annual report
B) checking the profitability of similar franchises
C) making sure the franchisor’s industry is conductive to franchising
D) making proper arrangements for financing
E) not making a hasty decision
58) List and explain three of the common misconceptions about franchising.
Answer:
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59) To avoid making a hasty judgment, a franchisee may not purchase a franchise for ________
days from the time the Franchise Disclosure Document is received.
A) 3
B) 5
C) 10
D) 14
E) 30
60) The ________ contains 23 categories of information that give a prospective franchisee a
broad base of information about the background and financial health of the franchisor.
A) Franchise Due Diligence Certificate
B) Franchise Offering Contract
C) Standardized Franchise Contract
D) Franchise Disclosure Document
E) Franchise Code of Conduct
61) The Franchise Disclosure Document is accepted in (or by) ________.
A) 11 states
B) all 50 states, all of Canada, and parts of Mexico
C) 39 states and all of Canada
D) all 50 states and parts of Canada
E) all nations participating in the North America Free Trade Agreement
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62) The Franchise Disclosure Document contains ________ categories of information.
A) 8
B) 14
C) 23
D) 35
E) 44
63) The document that consummates the sale of a franchise is called the ________.
A) franchise disclosure document
B) franchise agreement
C) license agreement
D) uniform franchise contract
E) franchise circular
64) While franchise agreements vary, each agreement typically contains these sections: the
________ agreement and the ________ agreement.
A) statutory; purchase
B) franchise; buy
C) buy; membership
D) procurement; statutory
E) purchase; franchise
65) While franchise agreements vary, each agreement typically contains the purchase agreement
and the ________ agreement.
A) legal
B) procurement
C) conversion
D) sell
E) franchise
66) In addition to FTC disclosure requirements, ________ states have laws providing additional
protection to franchisees.
A) 6
B) 10
C) 15
D) 33
E) 47
67) The Franchise Disclosure Document contains a total of 23 categories of information that give
a prospective franchisee a broad base of information about the background and financial health
of the franchisor.
68) A prospective franchisee should fully understand all the information contained in the
Franchise Disclosure Document before a franchise agreement is signed.
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69) The Franchise Disclosure Document is the document that consummates the sale of a
franchise.
70) According to a recent FTC report, instances of problems between franchisors and their
franchisees tend to be ________.
A) prevalent practices
B) isolated occurrences
C) nonexistent
D) prevalent practices for product and trademark franchise systems and isolated occurrences for
business format franchise systems
E) isolated occurrences for product and trademark franchise systems and prevalent practices for
business format franchise systems
71) International opportunities for franchising are becoming ________.
A) less prevalent
B) neither more nor less prevalent
C) more prevalent for product and trademark franchise systems and less prevalent for business
format franchise systems
D) more prevalent
E) less prevalent for product and trademark franchise systems and more prevalent for business
format franchise systems
72) In regard to international franchising, under a(n) ________ franchise agreement, the U.S.
franchisor grants the rights to an individual or company (the developer) to develop multiple
franchised businesses within a country or territory.
A) indirect
B) global
C) concurrent
D) direct
E) express
73) Jim Pierce just purchased the rights to develop multiple School of Rock franchises in
Germany. Jim just purchased a(n) ________ franchise arrangement.
A) concurrent
B) indirect
C) lateral
D) direct
E) subordinate
74) In the context of international franchising, under a ________ franchise arrangement, the U.S.
firm grants the rights to an individual or company (the master franchisee) to develop one or more
franchise businesses and to license others to develop one or more franchise businesses within the
country.
A) master
B) direct
C) subordinate
D) concurrent
E) multinational
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75) The majority of franchisors are highly ethical individuals who are interested only in making
a fair return on their investment.