Take Assessment: MGT 190 Exam 1

NameMGT 190 Exam 1

Question 1

In most business sales,

a. the buyer pays the seller 100 percent of the purchase price at the closing of the deal.

b. the seller finances 100 percent of the purchase price over a 30-year time period.

c. the buyer makes a down payment up front with the seller financing the remaining 30 to 80 percent of the purchase price over three to ten years.

d. the actual price the buyer pays is much more important than the structure and the terms of the deal.

Question 2

Which of the following statements about choosing a form of ownership is false?

a. The choice of a form of ownership can have far-reaching effects on almost every aspect

of a business and its owner.

b. Each form of ownership has its own unique set of advantages and disadvantages

c. The S-corporation is the best form of ownership for entrepreneurs.

d. All of the above.

Question 3

Which of the following items should be included on a business buyer’s checklist

a. Inventory

b. Tax returns

c. Lawsuits

d. All of the above

Question 4

Which of the following statements concerning core competencies is false?

a. Core competencies are a unique set of capabilities that a company develops in key operational areas that allow it to vault past competitors.

b. Small companies' core competencies often originate from the advantages their size offers.

c. Entrepreneurs must constantly change their core competencies.

d. Developing core competencies does not necessarily require a company to spend a great deal of money.

Question 5

Which element of the strategic management process addresses the first question of any business venture: "What business am I in?"

a. vision

b. mission

c. SWOT analysis

d. Strategy

Question 6

Experts estimate that __________ percent of franchisers are dishonest.

a. 5 to 10

b. 15 to 20

c. 25 to 30

d. 45 to 50

Question 7

Which of the following statements concerning family businesses is false?

a. Family businesses account for just 10 percent of all of the companies in the United States.

b. Family businesses employ 50 million people and account for over 55 percent of the nation's GDP.

c. A significant threat to family businesses comes from within: only about 30 percent of

them survive to the second generation.

d. All of the above.

Question 8

__________ partners cannot take an active role in the operation of a business, but if the

business fails, they stand to lose only what they have invested in the company.

a. General

b. Limited

c. Master

d. Insulated

Question 9

Which of the following requirements must an S-corporation meet?

a. It must be a domestic corporation.

b. It can issue only one class of common stock, but it can issue voting and nonvoting shares of common stock.

c. It cannot have more than 75 shareholders.

d. All of the above.

Question 10

The most common form of business ownership in the United States is the:

a. sole proprietorship

b. the partnership

c. the corporation

d. the S-corporation

Question 11

Self-employed business owners make up about __________ of the millionaires in the

United States.

a. one-fourth

b. one-half

c. two-thirds

d. three-fourths

Question 12

__________ is the ability to develop new ideas and to discover new ways of looking at

problems and opportunities.

a. Innovation

b. Creativity

c. Entrepreneurship

d. Brainstorming

Question 13

In a competitive profile matrix, a factor that represents a major strength to a company

would receive a rating of:

a. 1

b. 2

c. 3

d. 4

Question 14

Which of the following statements about the human brain is true?

a. The brain is divided into two asymmetric hemispheres.

b. The right side of the brain processes information intuitively, relying heavily on images,

and uses kaleidoscopic, lateral thinking.

c. The left side of the brain processes information in a step-by-step, logical fashion and

uses linear, vertical thinking.

d. All of the above.

Question 15

The aggregation of factors that sets a small business apart from its competitors and gives it a unique position in the market is its:

a. mission

b. competitive advantage


d. Strategy

Question 16

To form a limited liability company (LLC), an entrepreneur must file articles of organization and by-laws with the state corporation commission or secretary of state.



Question 17

Perhaps the best source of financing the purchase of a business is:

a. a commercial bank.

b. a venture capital company.

c. the seller.

d. an initial public offering (IPO).

Question 18

For years, a small, locally-owned pizza restaurant located near a university in a small town has focused on the university's students, offering them special student discounts and free on-campus delivery. Recently, Domino's Pizza announced its intention to open a new location in the same town so that it can sell pizza to the university students. To the locally-owned pizza restaurant, Domino's decision represents a:

a. strength

b. weakness

c. opportunity

d. threat

Question 19

The basis for the global economy today is __________ capital.

a. financial

b. manufacturing

c. intellectual

d. economic

Question 20

The key legal issue in the sale of an asset typically is the proper, lawful transfer of _______ from the seller to the buyer.

a. good title

b. liabilities

c. liens

d. contracts

Question 21

The period of time allowed for the subconscious to reflect on information that has been

gathered is called:

a. marination

b. reflection

c. illumination

d. incubation

Question 22

Women entrepreneurs:

a. are opening businesses in record numbers although it is at a pace much slower than

that of men.

b. launch businesses that are smaller than those of men.

c. launch businesses that have a higher survival rate than that of U.S. businesses overall

d. All of the above.

e. B and C only.

Question 23

Women-owned businesses have a lower survival rate than U.S. businesses overall.



Question 24

Which of the following factors acts as fuel to feed the nation's entrepreneurial fire?

a. Greater opportunities for entrepreneurial education

b. The shift from an industrial economy to a service economy

c. Increasingly powerful technological advancements that are available at affordable


d. All of the above.

Question 25

Which of the following is not a barrier to creativity?

a. Blindly following the rules

b. Searching for more than one "right" answer

c. Viewing play as frivolous

d. Becoming overly specialized

Question 26

Which of the following should alert a potential franchisee that a franchiser is dishonest?

a. Claims that the franchise contract is a standard one and that "you don't need to read it."

b. No written documentation to support claims and promises the franchiser makes about

the franchise, its operation, and its performance.

c. Reluctance to provide a list of existing franchisees to talk to.

d. All of the above.

Question 27

Polaroid's Creativity and Innovation Lab reports that out of every 3,000 new product

ideas, __________ are actually launched, and __________ become(s) successful in

the market.

a. 1000; 500

b. 500; 250

c. 10; 3

d. 2; 1

Question 28

Every partnership must have at least one __________ partner.

a. general

b. limited

c. silent

d. master

Question 29

Which form of ownership has the greatest ability to attract capital?

a. sole proprietorship

b. partnership

c. corporation

d. S-corporation

Question 30

The biggest disadvantage of a sole proprietorship is

a. its high cost of formation.

b. the complexity involved in discontinuing it.

c. the unlimited personal liability the owner has for the business's debts.

d. the owner's limited access to capital.

Question 31

An effective strategy makes the customer its focus.



Question 32

According to VR Business Brokers, the average selling price of a small company is:

a. $55,000

b. $160,000

c. $575,000

d. $1,050,000

Question 33

__________ are entrepreneurial couples who work together as co-owners of their business.

a. Dropouts

b. Copreneurs

c. Castoffs

d. Angels

Question 34

The disclosure document that is designed to help prospective franchisees evaluate franchise opportunities and to protect themselves from unscrupulous franchisers is the:

a. Trade Regulation Rule

b. Federal Trade Commission Report

c. Franchisee Protection Prospectus

d. Uniform Franchise Offering Circular

Question 35

Small business strategic management should include each of the following except:

a. setting objectives

b. using a short planning horizon

c. thinking strategically

d. encouraging employee participation

Question 36

The 3Rs of rapid prototyping are:

a. rough, rapid, and right

b. rapid, repeatable, and ready

c. realistic, rapid, and reliable

d. rough, rapid, and refined

Question 37

In which of the following countries is entrepreneurial activity most prevalent?

a. Japan

b. Germany

c. Great Britain

d. United States

Question 38

Which of the following activities comes first in the strategic management process?

a. Formulate a meaningful mission statement

b. Identify the company's strengths, weaknesses, opportunities, and threats.

c. Identify the key factors for success in the business

d. Develop a clear vision for the business.

Question 39

The service sector produces ____ percent of the jobs and ____ percent of the gross domestic product in the United States.

a. 75; 27

b. 83; 52

c. 92; 85

d. 95; 92

Question 40

By setting its products apart from those of competitors, Straus Family Creamery, a family business that produces organic, all-natural dairy products, is using which strategy?

a. low-cost

b. differentiation

c. focus

d. maintenance

Question 41

Franchise experts consider the three most important factors in franchising to be:

a. training, advertising, and location.

b. management expertise, financial reserves, and customer traffic.

c. financing, timing, and location.

d. location, location, and location.

Question 42

When evaluating the assets a company owns, a prospective buyer should be most interested in their __________ value.

a. book

b. par

c. market

d. stated

Question 43

Studies show that more than __________ percent of all business acquisitions fail to meet the buyer's expectations.

a. 10

b. 30

c. 50

d. 70

Question 44

A grant from the U.S. federal government that gives a person an exclusive right to make or sell a product is called a:

a. monopoly

b. patent

c. copyright

d. trademark

Question 45

A key success factor defines a relationship between a controllable variable and a critical factor affecting the firm's ability to compete.



Question 46

Which of the following statements concerning entrepreneurship in the United States is true?

a. A new business is born every 11 seconds in the United States

b. One out of every 12 Americans is actively involved in trying to start a new business.

c. A study found that 78 percent of influential Americans believe that entrepreneurship will

be the defining trend of this century.

d. All of the above

Question 47

The limited liability company (LLC) offers entrepreneurs

a. the tax advantages of a partnership.

b. the legal protection of a corporation.

c. maximum flexibility in the way it operates.

d. all of the above

Question 48

A company's __________ spell(s) out the ends toward which a company is moving; its

__________spell(s) out how it plans to reach those ends

a. mission, goals, and objectives; core competencies

b. strategy; core competencies

c. mission, goals and objectives; strategy

d. core competencies; strategy

Question 49

An exclusive right that protects the creator of original works is called a:

a. trademark

b. patent

c. copyright

d. All of the above.

Question 50

The best method for determining the value of a business is:

a. the adjusted balance sheet technique

b. the excess earnings method

c. the capitalized earnings approach

d. the discounted future earnings approach

e. There is no "best method" of determining the value of a business.

Question 51

The broad, long-range attributes that a business seeks to accomplish are called:

a. goals

b. objectives

c. strategies

d. key success factors

Question 52

Approximately __________ percent of the small companies that are up for sale ever get sold.

a. 25 to 33

b. 40 to 50

c. 65 to 73

d. 80 to 85

Question 53

Bennett is considering buying a business and has collected the following information:

Projected net earnings for next year = $117,000; rate of return on a similar risk

investment = 27%. Hoping to use the market approach, Bennett has located three

similar companies, whose stock is publicly traded. Their price-earnings ratios are 2.84,

2. 95, and 3.12. Under the market approach, how much is the business worth?

a. $117,000

b. $433,333

c. $93,822

d. $347, 490

Question 54

Bennett is considering buying an existing business and has collected the following

information: Projected net earnings for next year = $117,000; owner's salary =

$34,000; rate of return on a similar risk investment = 27%. Using the capitalized

earnings approach, how much is the business worth?

a. $151,000

b. $433,333

c. $307,407

d. $40,770

Question 55

A strategy that involves dividing a mass market into smaller, more homogeneous units

and then attacking only certain of these units is called:

a. segmenting

b. positioning

c. contesting

d. None of the above.

Question 56

The primary reason most entrepreneurs choose to incorporate their businesses is:

a. to gain the benefit of limited liability for the corporation's stockholders.

b. the ability of the business to continue indefinitely.

c. the ability to avoid the disadvantage of double taxation.

d. that the corporation offers the least expensive and least complex process of business


Question 57

The QWERTYUIOP configuration so common on computer keyboards is an illustration

of which barrier to creativity?

a. Searching for the one "right" answer

b. Blindly following the rules

c. Becoming overly specialized

d. Avoiding ambiguity

Question 58

A clearly defined vision:

a. provides meaningful direction for a company.

b. influences the decisions, both large and small, the people in an organization make.

c. motivates employees to higher levels of performance.

d. All of the above

Question 59

Inventory is valuable only if it:

a. is in good condition.

b. is of the highest quality.

c. embodies the best technology available.

d. is salable.

Question 60

A family limited partnership can be used to transfer the vast majority (99%) of the shares in a business to family members (e.g., children) while enabling the entrepreneur to maintain absolute control over the business because of:

a. the IRS' rules for family limited partnerships.

b. state laws for the establishment of family limited partnerships.

c. the nature of the business.

d. the terms of the limited partnership agreement.

Question 61

The unique components of a product's identity that a company uses to create a

product's image and to promote it is called its:

a. trade costume

b. trade dress

c. trade wear

d. trademark

Question 62

The primary consideration in negotiating a purchase agreement is to ensure the deal:

a. does not jeopardize the future financial health or cash flows of the business.

b. provides the buyer a good value and the seller fair compensation.

c. guarantees a minimum level of profitability for the business to remain viable.

d. provides a money back guarantee and a no-fault cancellation clause.

Question 63

Which of the following strategies works best when a company is appealing to price sensitive

customers and competes with firms that sell the same commodity products?

a. low-cost

b. differentiation

c. focus

d. maintenance

Question 64

A ________ gives one the right to exclude others from making, using, or selling something.

a. trade secret

b. trademark

c. copyright

d. patent

Question 65

Building a company's strategy around it core competencies enables a business to gain a sustainable competitive advantage.



Question 66

To validate an idea is accurate and useful, entrepreneurs may:

a. conduct experiments

b. run simulations

c. test market

d. build prototypes

e. All of the above.

Question 67

Locating franchised outlets in high-traffic, non-traditional locations such as airports, hospitals, zoos, sports arenas, and others is based on the principle of:

a. conversion franchising

b. intercept marketing

c. master franchising

d. piggyback franchising

Question 68

Bizcomp found the average sale price for small businesses across the United States

was _____ times earnings.

a. 15 (It is pure guess)

b. 25

c. 0.05 to 0.10

d. 2.7

Question 69

A valid copyright last for:

a. the life of the creator.

b. 20 years from the date of publication and can be renewed once.

c. 50 years.

d. the life of the creator plus 50 years.

Question 70

Which of the following is nota factor behind the current wave of entrepreneurial activity?

a. Changing competitive conditions that favor fleet-footed, agile, rapidly-responding,

smaller companies.

b. Relaxed bankruptcy laws that have reduced the penalty for failing in business.

c. The shift in the nation's economy from an industrial base to a knowledge base.

d. The downsizing of corporate America that has all but destroyed the long-standing

notion of job security in large corporations.

Question 71

The very abilities that make an entrepreneur successful often lead to managerial ineffectiveness.



Question 72

Which of the following statements concerning franchising is true?

a. Franchise sales total more than $1 trillion.

b. Franchises account for 44 percent of all retail sales.

c. A new franchise opens somewhere in the world every six-and-a-half minutes

d. All of the above.

Question 73

Which of the following factors plays a role in determining the rate of return used to value a business using one of the earnings approaches?

a. the basic, risk-free rate of return

b. an inflation premium

c. the risk allowance for investing in that particular business

d. all of the above

Question 74

The Uniform Franchise Offering Circular (UFOC):

a. is not required from franchisers with fewer than 10 franchised outlets.

b. must be checked, verified, and approved by the Federal Trade Commission before

franchisers can use it.

c. is designed to provide franchisees with important information about a franchise and

must be given to franchisees before they sign a franchise contract or pay any money to

the franchiser.

d. All of the above.

Question 75

Which of the following statements concerning franchise operations is true?

a. Franchisers may provide their franchisees with a business system, but they encourage

franchisees to deviate significantly from the system to stimulate innovation.

b. Most franchisers provide extensive financial assistance, usually in the form of direct

loans, to their franchisees.

c. One of the greatest sources of friction between franchisers and franchisees concerns

the location of new franchises; existing franchisees are afraid that placing new outlets so

close to their existing ones causes their sales and profits to be diluted.

d. The primary reason franchising has proved so popular is that franchisees are

guaranteed that they will succeed.

e. All of the above.

Question 76

Given the fact that most small companies lack the resources to reach a national or international market, many entrepreneurs choose to pursue a __________ strategy in which they specialize in meeting the needs of a specific target market segment.

a. low-cost

b. differentiation

c. focus

d. maintenance

Question 77

Which of the following is a way to enhance organizational creativity?

a. Expecting creativity

b. Expecting and tolerating failure

c. Viewing problems as challenges

d. All of the above

Question 78

A paradigm is:

a. a tool used for determining the value of a business that is for sale.

b. a preconceived idea of how the world should operate.

c. a rule for overcoming the barriers to creativity.

d. a tool entrepreneurs use to launch successful business ventures.

Question 79

Innovation is the ability to develop new ideas and to discover new ways of looking at problems and opportunities.



Question 80

A study by the Federal Trade Commission found that __________ percent of new

franchisees sign their franchise contracts without reading them.

a. 10

b. 20

c. 40

d. 60