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Homework answers / question archive / Chapter 4 FORMS OF BUSINESS OWNERSHIP TRUE-FALSE QUESTIONS 1)
Chapter 4 FORMS OF BUSINESS OWNERSHIP
TRUE-FALSE QUESTIONS
1). If the sole proprietorship acquires a legal business name, the owner then has limited liability.
a. True
b. False
2. One of the disadvantages of the sole proprietorship is that the owner has unlimited liability.
a. True
b. False
3. The sole proprietorship is considered a legal entity; therefore, it is taxed separately from the owner.
a. True
b. False
4. For partnerships to be legal, they must be established in writing.
a. True
b. False
5. In a limited partnership, all of the partners have limited liability.
a. True
b. False
6. A disadvantage of a partnership is that any partner may have to pay all of the debts of the company regardless of who incurred the debts.
a. True
b. False
7. Dissolving a partnership is easier than dissolving a sole proprietorship.
a. True
b. False
8. Registration procedures for incorporation are uniform from state to state across the U.S.
a. True
b. False
9. Articles of incorporation usually specify the life of a corporation as a certain number of predetermined years.
a. True
b. False
10. The corporation's board of directors elects the corporate officers.
a. True
b. False
11. Double taxation is a distinct advantage that corporations have over other forms of ownership.
a. True
b. False
12. Corporations face many more government restrictions and regulations than sole proprietorships and partnerships.
a. True
b. False
13. Cooperatives are regulated with the same tax laws and rates as corporations.
a. True
b. False
14. The two types of cooperatives are wholesale and retail.
a. True
b. False
15. When Ashland Plastics and Melamine Chemicals formed a joint venture to develop flame-resistant plastic sheeting, the relationship most likely ended as soon as the project was completed.
a. True
b. False
16. When Addison Wilcox buys an H&R Block franchise, he becomes a franchisee.
a. True
b. False
17. A person who buys a franchise has the same level of control as an entrepreneur who opens his or her own sole proprietorship.
a. True
b. False
18. Changing demographics drive the franchise industry growth.
a. True
b. False
19. In 2004, Albertson’s Inc. purchased Southern California’s premier fresh, gourmet, and specialty food retailer, Bristol Farms. This was an example of an acquisition.
a. True
b. False
20. When Whole Foods Market, the world's largest natural foods supermarket, acquired Select Fish, a fish processing company, it was an example of a conglomerate merger.
a. True
b. False
21. When companies in the same industry merge to achieve economies of scale and to expand their product lines, it is called a horizontal merger.
a. True
b. False
22. When Wachovia Bank, acquired First Union Bank Dim S.A., it was an example of a conglomerate merger.
a. True
b. False
23. Baby boomers are having a strong effect on the franchise industry.
a. True
b. False
24. Eighty-two percent of boomers indicated that they will not retire at or before age 65.
a. True
b. False
MULTIPLE CHOICE QUESTIONS
1. The most common form of business organization is the:
A. general partnership
B. corporation
C. sole proprietorship
D. cooperative
E. limited partnership
2. What type of business organization generates the most total sales?
A. General partnership
B. Corporation
C. Sole proprietorship
D. Cooperative
E. Partnership
3. Of all forms of business ownership, corporations account for the largest share of both:
A. number of firms and sales
B. sales and profits
C. income and employees
D. number of firms and employees
E. bankruptcies and employees
4. Jules Sylvester had always loved reptiles. When he was asked by a movie producer if he could locate some anaconda snakes for a movie, a business was born. Sylvester is the proud owner and operator of Reptile Rentals. The California-based business, which he started with no financial help from anyone, is often called on to provide "creepy, crawly" moments in the movies. Jules Sylvester is an example of a:
A. sole partnership
B. sole proprietorship
C. S corporation
D. limited partnership
E. general proprietorship
5. When Linda McAnem began Stirya, a New York-based computer services company, she ran it as a sole proprietorship. As a sole proprietor, McAnem:
A. found it easy to raise capital
B. had no trouble finding qualified employees
C. found the business to be easy and inexpensive to form
D. had limited liability
E. was able to take advantage of various tax deductions
6. Which of the following is an advantage of sole proprietor ownership?
A. Limited liability
B. Freedom from government regulation
C. Ease with which capital can be raised
D. Ease with which qualified employees can be found
E. None of the above
7 Which type of business organization experiences the least governmental regulation?
A. Joint venture
B. Private corporation
C. Limited partnership
D. Public corporation
E. Sole proprietorship
8. The form of business ownership that is easiest to dissolve is the:
A. sole proprietorship
B. limited partnership
C. cooperative
D. subsidiary
E. public corporation
9. The form of business ownership that has the most difficulty in raising capital is the:
A. general partnership
B. limited partnership
C. cooperative
D. corporation
E. sole proprietorship
10. Paul Hyatt owns and operates DeepClean, a Florida-based company that cleans up mold and mildew in homes and businesses. As the sole proprietor of the business, he has unlimited liability, which means:
A. he has unlimited access to funds
B. he is fully liable for all business debts
C. he usually has to put in an unlimited number of hours
D. he must have liability insurance
E. he is free from government regulation
11. A term that means that business damages and/or debts can also be attached to the personal assets of the owners is ______ liability.
A. limited
B. informal
C. funding
D. unlimited
E. asset
12. Which of the following is a disadvantage of sole proprietor ownership?
A. Difficulty in raising capital
B. No special taxation
C. Ease of dissolution
D. Ease of formation
E. Freedom from government regulation
13. Which of the following is a disadvantage of sole proprietor ownership?
A. Ease and low cost of formation
B. Freedom from government regulation
C. All profits to the owner
D. Unlimited liability
E. Ease of dissolution
14. Suzanne Pogell wanted to learn to sail, but she could find no one to teach her because men were the ones who sailed, and women were their crew. She finally did convince someone to teach her to sail, and after mastering sailing, she started an all-woman sailing school called Womanship as a sole proprietorship. When she dies, the:
A. business dies with her
B. business continues with the employees running it
C. government takes over and sells the assets
D. business can be continued by any blood relative
E. business must shut down until after her will is probated
15. Sole proprietorships:
A. are double taxed
B. have unlimited liability
C. are more difficult to dissolve than partnerships
D. find is easy to raise needed capital
E. are more closely regulated by the government than other forms of business
16. Tonya Thomas is tired of working for other people. She wants to start her own administrative services businesses and control her own work schedule. She wants to have sole responsibility for all business decisions. Thomas should form a(n):
A. limited cooperative
B. limited partnership
C. sole proprietorship
D. joint venture
E. S corporation
17. Pete Yankin and Ken Lowery consider themselves to be experts on hunting in the mountains in North Carolina. As a result, the two men established a company that markets hunting expeditions. Yankin and Lowery share responsibilities for booking the trips, gathering supplies, and guiding groups of five to seven hunters into locations where they can hunt for deer and bear. Since the two will share any profit equally, this would be an example of a(n):
A. S corporation
B. cooperative
C. sole proprietorship
D. partnership
E. double proprietorship
18. Stewed Tomatoes was an "all-girl power-pop trio." Its three members realized that many musicians feel stifled when making music in a sterile studio environment while the clock ticked away expensive hours, so the three girl band members created Materville Studios, a multimedia production house and recording studio in downtown Chicago. They share work responsibilities and profits equally. Materville Studios is a(n):
A. S corporation
B. cooperative
C. sole proprietorship
D. partnership
E. double proprietorship
19. Partnership agreements generally specify all of following EXCEPT:
A. contributions of each partner
B. management responsibilities
C. provisions for senior partnership interests
D. methods of taxation of each partner
E. steps in dissolving the entity
20. The growing popularity of bread machines has become a new business opportunity for Shelly Clemins and Jan Schoenbarr. The women make and sell bread machine covers and fabric gift bags to hold the bread loaves made in the machines. The women share the responsibilities of running the business (called Bread & Butter) as well as its profits equally. Bread & Butter would be an example of a(n):
A. general partnership
B. general cooperative
C. limited cooperative
D. S-partnership
E. sole partnership
21. Bob Nichol and Martha Bohner own and operate a small company that bakes and sells Thunder Muffins, gigantic muffins full of blueberries, blackberries, or raspberries. They sell the muffins at a local farm that is open to the public on weekends. Since they operate the business as a partnership, they should:
A. borrow as much as possible
B. hire an outside consultant
C. hire a manager to operate the business
D. seek government assistance
E. agree to share the business’s profits and losses
22. Croutakie seemed like a great idea. Chef Leo Nyami and Sara Rice decided to take advantage of the popularity of shitake mushrooms and create some shitake mushrooms products that could be sold to restaurant patrons and other gourmets through their new company. Nyami and Rice have recently abandoned their business because they could not pay its outstanding business debts. Since Nyami and Rice are both liable for the debts, their business was a(n):
A. general partnership
B. private corporation
C. limited partnership
D. open corporation
E. quasi corporation
23. Which of the following statements about a general partnership is true?
A. A general partnership is an entity separate from its owners.
B. A general partnership is the most popular form of business ownership.
C. The partnership agreement must be in writing to be legal.
D. General partnerships are usually "double-taxed."
E. Partners in a general partnership co-own the company’s assets.
24. Three Sisters Specialty Foods, owned by Judith Coker, Millie Humphreys, and Jade Watson, sells eggless cake mixes for people on a restricted diet. Coker recently purchased an industrial grade mixer without conferring with her sisters who were upset when they learned that they were all three liable for the payments on the mixer. Three Sisters is an example of a:
A. general partnership
B. closely held corporation
C. limited partnership
D. joint partnership
E. private corporation
25. Thom Georges wants to open a store where he sells nothing but antique architectural features that he can salvage from old houses being torn down to make way for progress. He has an eye for the kind of doors, windows, mantels, and so forth that decorators want, but he does not have all the funding he needs to get started. He has invited his parents to invest $40,000 in the enterprise. He has told them that if they do invest, they would have liabilities in the firm equal to but no greater than their investment. Georges is trying to get them to form a _____ with him.
A. closely-held corporation
B. cooperative
C. general partnership
D. joint venture
E. limited partnership
26. Croutakie seemed like a great idea. Chef Leo Nyami and Sara Rice decided to take advantage of the popularity of shitake mushrooms and create some shitake mushrooms products that could be sold to restaurant patrons and other gourmets through their new company. The mushrooms are expensive, and there were other unexpected financial problems, so Nyami and Rice asked Bill Ng to become a limited partner. This means that Ng:
A. is limited in the number of hours he can work each month
B. is limited in the amount he can invest
C. qualifies for a limited income tax rate
D. agrees not to participate in day-to-day management of the firm
E. agrees to limit his expertise to a certain area, such as finance or marketing
27. Karl Metzger plans to invest $5,000 in a partnership with his brother to produce and sell handcrafted violins, zithers, and other string instruments. Metzger does not plan to work in the business and wants no more liability than his investment. He should be a:
A. stockholder
B. temporary partner
C. general partner
D. limited partner
E. joint partner
28. Fred Pittman has invested $10,000 in his son’s motorcycle repair shop, but he takes no part in its management. Pittman is a(n):
A. limited partner
B. non-working partner
C. general partner
D. entrepreneur
E. unlimited partner
29. Which of the following statements about the partnership as a form of business ownership is true?
A. Termination of the partnership is simple.
B. Liability for the partners is limited.
C. Disagreements between partners are rare.
D. Formation of the partnership is simple.
E. Stockholders in partnerships have voting rights.
30. Ease of formation, flexibility, and diversity of management are advantages of the _____ form of business ownership.
A. partnership
B. joint venture
C. cooperative
D. conglomerate
E. corporation
31. Which of the following is an example of a disadvantage associated with a partnership?
A. unlimited liability
B. possibility of more available credit
C. diversity of management
D. flexibility
E. ease of formation
32. Which of the following statements about the taxation of partnerships is true?
A. Both the partnership and the individuals are taxed for any profits earned.
B. Partnerships file tax returns but pass profits and losses on to partners who report them on their tax returns.
C. Partnerships use corporate tax rates in filing returns.
D. Partnerships are limited in taxes depending on number of partners.
E. None of the above about the taxation of partnerships is true.
33. Which of the following statements about incorporation is true?
A. A corporation has to incorporate in the state in which it is based.
B. A corporation is not subject to the laws of the state in which it is formed.
C. Articles of incorporation may vary slightly from state to state.
D. Corporations are taxed the same regardless of the state in which they are chartered.
E. Corporations must register in each state in which they want to do business.
34. A corporation:
A. is a taxable entity
B. is subject to the laws of the state in which it was formed
C. can own property
D. can sue and be sued
E. is accurately described by all of the above
35. A corporation:
A. does not have a life separate from its owners
B. cannot sue or be sued
C. does not have a size limitation
D. ends when the owner of the corporation charter dies
E. is one of the easy types of businesses to form
36. When Linda McAnem began Stirya, a New York-based computer services company, she ran it as a sole proprietorship. As the business grew, she realized that she did not want to be personally liable for the business's debts and wanted her business accounts to be separate from her personal accounts. Therefore, she should have:
A. incorporated Stirya
B. found limited partners
C. created a general proprietorship
D. created an S proprietorship
E. franchised the business
37. With its ease of registration and pro-corporate policies, _____ is called the "state of incorporation." About half of the Fortune 500 companies are incorporated there.
A. New York
B. Ohio
C. Delaware
D. Georgia
E. California
38. The first step to incorporating a company is to:
A. select the company’s name
B. write the articles of incorporation
C. buy necessary licenses and pay required taxes
D. hold an organizational meeting
E. create a board of directors
39. Rebecca Siddoway own and operate Country Candies. Siddoway specializes in making rich, creamy toffees that she packages in attractive gift boxes and sells through the mail. What would her first step be if she decides to incorporate her business to make it easier to find investors?
A. to elect a board of directors
B. to write the articles of incorporation
C. to hold an organizational meeting with shareholders
D. to sell stock to her customers
E. to patent her products
40. Which of the following provides the legal and managerial guidelines for operating the firm?
A. articles of incorporation
B. bylaws
C. constitution
D. corporate structure
E. annual report
41. Who owns a corporation?
A. its employees
B. its board of directors
C. its president
D. its board of directors and major stockholders
E. everyone who owns a share of stock in the corporation
42. Articles of incorporation do NOT include:
A. the name and address of the corporation
B. a list of all stockholders' names
C. the objectives of the corporation
D. the minimum capital requirements
E. the classes of stock
43. A firm's stockholders have the right to do all of the following EXCEPT:
A. share in company profits, in the form of dividends
B. elect the board of directors
C. attend annual meetings
D. get discounts on the company's product or service
E. sell or transfer their ownership
44. Aaron Medford has invested $600 in the corporate stock of a manufacturer of offshore oil drilling equipment. If the company goes bankrupt, the most Medford could lose would be:
A. half of his investment
B. the par value of his stock
C. $600
D. $600 plus foreclosure costs
E. nothing--the company must reimburse him his investment
45. A corporation’s board of directors:
A. is appointed by the SEC
B. is selected by the agency that chartered the corporation
C. acts as organizational figureheads
D. sets major corporate goals and policies
E. should never have more than seven members
46. Why do most large companies have outside directors on their boards?
A. to meet federal government requirements
B. to create globalization efforts
C. to provide independent benchmarks
D. to provide technology leadership
E. to bring a fresh view to all of the corporation’s activities
47. Jack Smith and four other people own Persimmon Hill Farm, an agric-entertainment farm which provides corn mazes, bonfires, hay rides, and food treats to paying visitors. All of the owners have limited financial risk. Persimmon Hill Farm is a(n):
A. strategic alliance
B. general partnership
C. limited partnership
D. corporation
E. multiple proprietorship
48. The fact that a corporation has limited liability means:
A. corporations can earn a limited amount
B. some of the owners are limited in earnings
C. owners' liabilities are limited to the amount invested
D. the life of the corporation is limited
E. the corporation's ability to expand is limited
49. A corporation has:
A. limited liability
B. ease of transferring ownership
C. continuity of life
D. ability to attract financing
E. all of the above
50. Rebecca Siddoway own and operate Country Candies. Siddoway specializes in making rich, creamy toffees that she packages in attractive gift boxes and sells through the mail. What would be the advantage to Siddoway if she decides to incorporate her business?
A. Corporations have fewer government restrictions and regulations.
B. Corporations have guaranteed loans for expansion.
C. Corporations pay lower and fewer taxes.
D. Corporations have an enhanced ability to attract financing.
E. Customers and suppliers would treat her with greater respect if she operated her business as a corporation instead of a sole proprietorship.
51. A corporation's earnings are taxed as corporate earnings and as dividends to the stockholders. This is known as:
A. double taxation
B. double indemnity
C. double jeopardy
D. primary and secondary taxation
E. tax duplication
52. Double taxation in a corporation means:
A. the corporation must pay taxes twice a year
B. earnings of the corporation and dividends of the shareholders both are taxed
C. corporations can double their earnings without higher taxes
D. corporations must pay both state and federal taxes
E. none of the above
53. Which of the following describes a disadvantage associated with a corporation?
A. double taxation
B. cost of formation
C. government regulations
D. complexity of formation
E. all of the above
54. Before selling stock to the public, a corporation must register with the:
A. Internal Revenue Service
B. Securities and Exchange Commission
C. World Bank
D. U.S. Treasury Department
E. Federal Trade Commission
55. The C Corporation is another term for:
A. the conventional form of corporation
B. limited partnerships
C. multiple proprietorships
D. general partnerships
E. limited liability companies
56. An S corporation is generally set up to:
A. take advantage of limited liability
B. reduce tax burdens
C. easy entry into an industry
D. implement an expansion strategy
E. attract capital
57. To avoid double taxation, a new entrepreneur may elect to organize as a(n):
A. cooperative
B. multiple proprietorship
C. S corporation
D. conventional corporation
E. C corporation
58. An S corporation:
A. is taxed like a conventional corporation
B. does not have stockholders
C. does not make the owners of the corporation personally liable for its debts
D. is only a legal format for companies that have at least 1,000 stockholders
E. does not have a board of directors
59. A type of business entity that provides liability protection but is taxed like a partnership is a:
A. franchise
B. general partnership
C. C corporation
D. S corporation
E. joint venture
60. Which of the following statements about limited liability companies (LLCs) is true?
A. LLCs are not corporations.
B. LLCs are like S corporations in that they appeal to small businesses.
C. LLCs offer their owners the option of being taxed as either a partnership or a corporation.
D. LLCs are legal in all states in the U.S.
E. All of the above statements about LLCs are true.
61. A _____ offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation.
A. limited liability company
B. C corporation
C. cooperative
D. joint venture
E. franchise
62. _____ are organizations formed by individuals or businesses with similar interests to achieve greater economies of scale and economic power through collective ownership.
A. Limited partnerships
B. Cooperatives
C. Joint ventures
D. Franchises
E. Vertical mergers
63. A group of cotton growers in North Georgia and North Alabama pooled their resources to build a cotton gin and storage area for the ginned cotton. They marketed their cotton to textile mills under one label. This collective ownership organization is a:
A. franchise
B. joint venture
C. common market partnership
D. cooperative
E. C corporation
64. The two types of cooperatives are:
A. buyer and seller
B. general liability and limited liability
C. public and private
D. member-operated and board-of-director-operated
E. retail and wholesale
65. Which of the following statements about cooperatives is true?
A. Cooperatives increase their members buying power.
B. Cooperatives have a limited life span.
C. Cooperatives have the same liabilities as partnerships.
D. Cooperatives cannot legally compete with taxable entities.
E. None of the above statements about cooperatives is true.
66. A _____ is when two or more companies form a special entity to undertake a specific project, usually for a specific period of time.
A. general partnership
B. limited-time partnership
C. joint venture
D. cooperative
E. C corporation
67. The development of new drugs is very expensive. For this reason Genentech, a large biotechnical company, has entered into a _____ with Swiss-owned Roche to develop a vaccine for tuberculosis. When the vaccine is developed or when the two biotechnical companies determine the vaccine cannot be developed using their current methodology, this relationship will dissolve.
A. general partnership
B. limited-time partnership
C. joint venture
D. cooperative
E. C corporation
68. Hard Rock Cafe International and Sol Melia Hotels and Resorts have allied to develop a multimillion-dollar hotel. This relationship is a _____ because their alliance will end as soon as the hotel is completed.
A. general partnership
B. limited-time partnership
C. joint venture
D. cooperative
E. C corporation
Title: ANSWER: C
69. The purchaser of a franchise is called the:
A. contractor
B. sole proprietor
C. franchisee
D. franchisor
E. direct buyer
70. The headquarters, seller, and supplier of the service or method of operation of a franchise is called the:
A. contractee
B. direct seller
C. franchisee
D. franchisor
E. provisioner
71. The franchise agreement:
A. must be approved by the Securities and Exchange Commission (SEC)
B. guarantees that the franchisee will make a profit
C. is the contract that details the terms of the franchise
D. guarantees that the franchisor will make a profit
E. removes any liability from the franchisor if the franchisee does not make a profit
72. The franchisor generally does NOT provide the franchisee with:
A. use of company name and logo
B. assistance in site selection
C. wholesale prices on supplies
D. help in employee selection
E. management training
73. Kayla Langton is considering the purchase of a Bonus Building Care franchise. Langton is likely to get assistance from the commercial cleaning franchisor in which of the following areas?
A. employee training
B. accounting procedures
C. permission to use company logo in advertising
D. site selection
E. all of these
74. Clarence Danvers is buying a Cinnabon franchise at the airport in Tulsa. Danvers knows that he will get all of the following benefits EXCEPT:
A. a proven track record
B. a set operating procedures
C. assistance in personal income tax preparation
D. standard goods and services
E. national advertising
75. Which of the following is a disadvantage for the fast-food franchisee?
A. on-going management training programs
B. a peer group for support
C. royalty fees
D. short-term credit for buying supplies
E. recognized name and product
76. Jayson Tully is contemplating the purchase of a Popeye's Chicken franchise. Tully has made a list of the disadvantages that he assumes he will face as a new business owner. Which of the following is actually an advantage?
A. assistance in building plans
B. conformity to operating procedures
C. royalty fees
D. defined territory
E. up-front franchise fee
77. A disadvantage of franchising to the franchisee is:
A. assistance in site location
B. ongoing management training program
C. restricted operating freedom
D. national name recognition
E. standardized operating procedures
78. Restricted operating freedom in franchising means that the franchisee must conform to:
A. franchise product standards
B. facilities design
C. operating rules
D. a specific, defined territory
E. all of the above
79. Franchisors in foreign countries must be aware of:
A. currency exchange
B. local culture
C. language differences
D. political risks
E. all of the above
80. The combination of two companies that join to form one company is called a:
A. joint venture
B. merger
C. conglomerate
D. cartel
E. voluntary union
81. Ottens Flavors, Philadelphia, announced its combination with MK Flavors & Co., Mexico City. The Mexican operation will offer the U.S.-based company an increased market presence in Central and South America. The new company will be renamed MK Ottens Flavors. MK Ottens Flavor was created through a(n):
A. joint venture
B. merger
C. conglomerate
D. cartel
E. voluntary union
82. IBM purchased MRO Software Inc. for $740 million. MRO was a niche provider of software and services to help customers including nuclear power plants and oil companies. IBM, plans to fold MRO into its software unit. This is an example of a(n):
A. joint venture
B. merger
C. conglomerate
D. voluntary union
E. acquisition
83. Fairmount Food Group purchased Swissrose International Inc., market of several brands of specialty and food service cheese from ConAgra. The _____ will make Fairmount the largest U.S. importer and marketer of specialty and deli-style cheese.
A. joint venture
B. merger
C. conglomerate
D. voluntary union
E. acquisition
84. North American Van Lines and Allied Van Lines combined in a _____ merger that will create the world’s largest moving company. Prior to the merger, North American was the leading company in moving high-end merchandise such as computer and hospital equipment, while Allied specialized in households.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. functional
85. International Association of Food Industry Suppliers has completed its _____ merger with the Food Processing Machinery Association. The action represents a coming together of equals in which both boards and staffs are committed to creating a new association that is stronger and better equipped to serve its members’ growing needs to more effectively compete in their marketplaces.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. functional
86. The merger of McKesson, the leading U.S. drug wholesaler, and HBOC, a producer of health-care inventory software, is an example of a(n) _____ merger.
A. acquired
B. combination
C. horizontal
D. functional
E. vertical
87. Back in the late 19th century, the Carnegie Steel company controlled not only the mills where the steel was manufactured, but also the mines where the iron ore was extracted, the coal mines that supplied the coal, the ships that transported the iron ore and the railroads that transported the coal to the factory. Through several _____ mergers the steel company gained control of the various resources it needed to product steel.
A. acquired
B. combination
C. horizontal
D. functional
E. vertical
88. Multinational oil companies such as ExxonMobil, Royal Dutch Shell, or BP are active all the way along the supply chain from locating crude oil deposits, drilling and extracting crude, transporting it around the world, refining it into petrochemicals such as gasoline, to distributing the fuel to company-owned retail stations, where it is sold to consumers. To gain this complete control of the various resources needed to product oil and gas, the companies had to have engaged in _____ mergers.
A. acquired
B. combination
C. horizontal
D. functional
E. vertical
89. A _____ merger brings together companies in unrelated businesses to reduce risk.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. cooperative
90. There are over 1,100 Corner Stores that market candy. When Valero Energy Corp. purchased the chain of retail stores, it was an example of a _____ merger.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. cooperative
91. U.S. Lumber Company’s purchase of EnviroPlastics, a manufacturer of plastic cutlery, is an example of a _____ merger.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. cooperative
92. Why would a company choose to engage in a conglomerate merger instead of a vertical or horizontal merger?
A. A conglomerate merger is done to reduce risk.
B. Double taxation does not occur when the merger is with a company outside the normal business environment of the acquiring company.
C. The conglomerate merger results in reduced liability while the other two types of mergers do not.
D. It is easier to dissolve a conglomerate merger than the other types of mergers.
E. Government regulation of conglomerate mergers is minimal.
93. Miniature Precision Corporation, a microprocessor manufacturer, recently acquired Cameron-Price, a plastics mold manufacturer. Miniature Precision financed the transaction with 90 percent borrowed money and used Cameron-Price's assets as collateral. This type of merger is commonly known as a(n):
A. hostile takeover
B. greenmail
C. leveraged buyout
D. institutional takeover
E. financial merger
94. _____ are corporate takeovers financed by large amounts of borrowed money.
A. Liquidity corporations
B. Debt acquisitions
C. Financed mergers
D. Leveraged buyouts
E. Amortized mergers
95. Which of the following demographic groups is having the greatest impact on the growth of the franchising industry?
A. teenagers
B. Generation X
C. pre-teens
D. baby boomers
E. Generation Y
96. How does the current boom in mergers and acquisitions differ from ones in earlier years?
A. The trend is to reduce operations outside of one's national boundaries.
B. Laws that reduce legal and financial liabilities as a result of business failures have been minimized.
C. The people involved in most of the mergers and acquisitions are small business owners.
D. The international legislation governing mergers and acquisitions is been codified.
E. There is a greater number of U.S. and foreign companies making cross-border acquisitions.
FILL-IN-THE-BLANK QUESTIONS
1. A _____ is a business that is established, owned, operated, and often financed by one person.
2. In a sole proprietorship, the owner is fully liable for all business debts of the company. This term is called _____ liability.
3. In a _____ partnership, partners have unlimited liability for all of the firm’s business obligations and who control its operations.
4. _____ are the owners of a corporation.
5. Taxing a corporation's earnings and taxing the stockholder's dividends from the corporate earnings is called _____ taxation.
6. An _____ is a hybrid entity that is organized like a corporation, with stockholders, board of directors, and officer, but taxed like a partnership with income and losses flowing through to the stockholders and taxed as their personal income.
7. A _____ is a hybrid organization that offers the same liability protection as a corporation, but may be taxed as either a partnership or a corporation.
8. The _____ is the basic or conventional form of corporate organization.
9. A _____ is an organization formed by individuals or businesses with similar interests to gain benefits from size and collective ownership.
10. A _____ is form of business organization that is created to carry out a single project and is dissolved upon completion.
11. Marc Wool purchased a franchise from Maaco Collision Repair service. Wool is the _____ in this franchise agreement.
12. A _____ is the combining two or more firms to form one new company.
13. An _____ is the purchase of a corporation by another corporation or by an investor group.
14. A merger between Pepsi-Cola and Ardea Beverage Co., maker of a line of nutritionally enhanced, low calorie, carbonated beverages, would be considered a _____ merger.
15. _____ occur when mergers or acquisitions are financed by large amounts of borrowed money, secured by the acquired company's assets.
SHORT ANSWER QUESTIONS
1. In the United States, which form of business organization generates the most sales and profits?
2. List the three major categories of business ownership.
3. Which form of business ownership is an ideal way to test new business ideas?
4. What forms of business ownership have to deal with the disadvantage of unlimited liability?
5. List the two basic types of partnership.
6. What is the first step in incorporating a company?
7. Who are the owners of a corporation?
8. How is the board of directors for a corporation created?
9. What is double taxation?
10. What is the major difference between S corporations and limited liability companies (LLCs)?
11. What are the two types of cooperatives?
12. Discuss the following statement: “Joint ventures have unlimited life.”
13. Discuss the following statement: “The franchisee has just as much control over his or her business as the sole proprietor.”
14. Distinguish between a merger and an acquisition.
15. List the three major types of mergers.
