Los Angeles Mission College - MANEGMENT 013  Cha14_FranchisingLicensingHarvesting          Question1)A disadvantage of harvesting cash over time as an exit strategy is that ________

Los Angeles Mission College - MANEGMENT 013

 Cha14_FranchisingLicensingHarvesting         

Question1)A disadvantage of harvesting cash over time as an exit strategy is that ________.  

 

A.   the owner doesn't have to look for a buyer

 

 

 

 

 A.         the owner will lose money

  B.        it can take a long time to complete

 

 C.   the managers find out what the company is really

D.         worth

 

 

Question 2

A ________ identifies the products or services of a company and differentiates them from those of competitors.

 A. mission

	B.	copyright

 

 C.        brand

 

 D. product line

 

 

 

Question 3

A ________ is a business that markets a product or service in the manner prescribed by the parent business.

 A. franchise

	B.	license

 

	C.	replica

 

	D.	branch

 

 

 

Question 4

A ________ represents the company's promise to consistently deliver a specific set of benefits to customers.

product line extension program

 

 

product life cycle

 C.        customer service policy

	D.	brand

 

 

 

Question 5

At what stage of starting and running your business should you inform investors of your exit strategy? It should be ________.

 A. when you are ready to exit the business

 

in your first annual report

 

 

in the business plan

 

 

the years sales peak

 

 

 

Question 6

Benefits of franchising for the franchisor include ________.  A. lower marketing and promotional costs

 

	B.	growth with minimal capital

	C.	royalty payments

investment

 

 D. All of these.

 

 

Question 7

Describe three simple methods that can be used to estimate a selling price for a business:

 

Question 8

Explain replication strategies and harvesting and how they differ.

 

 

Question 9

Harvesting means to sell, take public, or merge a company to yield proceeds for the owner(s).

  True

  False

 

Question 10

Harvesting options include ________.

an IPO

 

 

merging or being acquired

 

 

increasing cash flows and a management buy­out

 D. All of these.

 

 

Question 11

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?

$300,000

 

 

$3,500,000

 C.        $350,000

 

 D. $3,000,000

 

 

 

Question 12

If you buy a McDonald's franchise and agree to pay a royalty fee of 12.5% annually, how much money will you owe McDonald's at the end of a year in which you sell $98,000 of product?

$12,200

 

 

$12,100

 C.        $12,250

 

 

 D. $12,000

 

 

 

Question 13

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.	market­based approach

 

	C.	book value method

 

	D.	pay­back method

 

 

 

Question 14

In valuing a business, the methods that buyers and sellers can use include ________.

market­based value

 

 

book value

 

 

future earnings  D. Any of these.

 

 

 

Question 15

It typically requires at least ________ years to develop a company worth harvesting.

twenty

	B.	fifteen

 

 C.        ten

	D.	twelve

 

 

 

Question 16

Licensing is ________.

 A. renting your brand or other intellectual property to increase sales

 

the right to start a business and run it exactly as the licensor wants it         run

 

the right to sell knockoffs of a product

 

	D.	the right to operate a business

 

 

 

Question 17

Licensors must be careful that a licensee ________.

doesn't fail to pay royalties

 

 

controls every aspect of the licensor's business

 C.        doesn't damage the licensing company's name

 

 D. franchises the brand to as many others as            possible

 

 

Question 18

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.	line promotion

 

	C.	brand extension

 

	D.	branding

 

 

 

Question 19

One of the advantages of an Employee Stock Ownership Plan is that ________.

 A. ESOPs offer tax breaks to the company

 

 

the owner will have to look for buyers in the general public

 

 

it will prevent employees from having control of the            company

 

employees will likely quit and leave

 

 

 

Question 20

One of the methods for computing a company's valuation is called the market-based technique. This means to look at a company as assets minus liabilities.

 

 

 

Question 21

One way to grow your business is to use diversification, which is the addition of offerings beyond your core product or service.

  True

  False

 

Question 22

One way to value a business is to ________. In general, the business should sell for 3 to 5 times its annual net earnings.

 A. look at a multiple of its net earnings

 

look at a professional appraisal

 

 

look at a comparison with similar businesses

 

 

use an appropriate benchmark

 

 

 

Question 23

The benefits of franchising include growth with medium capital investment, lower marketing but higher promotional costs, and royalties.  

True

  False

 

Question 24

The harvest or exit strategies set out in a business's plan is important not only to the entrepreneur but also to ________.

consumers

 

 

employees

 C.        investors

	D.	the IRS

 

 

 

Question 25

This harvest option has the advantage of financing growth that the company could not achieve on its own.

 A. employee stock ownership plan

 

 

 B.        merger or acquisition

 

management buyout

 

 

increase the free cash flow

 

 

 

Question 26

This is an exit strategy when an entrepreneur sells his or her company to its managers.  

A. a management buy­out

	B.	a merger

 

	C.	employee buy­out

 

	D.	a management takeover

 

 

 

Question 27

Three of the most common harvesting options include increasing the free cash flow, management buyout, and management stock ownership plan.

 

 

Question 28

To take a business public means to sell its stock on the stock market. The acronym for the first offering of a business' stock is ________.

 A. IPO

	B.	IMPO

 

	C.	ALPO

 

	D.	FIFO

 

 

 

Question 29

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.	profit maximizing price

 

	C.	future value

 

	D.	net present value

 

 

 

Question 30

What did Ray Kroc do when he franchised McDonald's that set the bar for future franchise operations?

He provided training and support to franchisees to ensure that quality would be consistent in every McDonald's restaurant.

 

He improved the quality of hamburgers and customer service.

 

 

He sold franchises in competing territories to encourage franchise owners to compete and come            up with new innovations for the company.

 

He licensed the McDonald's name to a wide variety of products such as hats and shirts.

 

 

 

Question 31

What is franchising and how is it different from licensing?

 

Question 32

When one is merging or being acquired, ________.

it is typically a quick and emotionless process

 

 

it is typically concluded within a few weeks

it can be an emotionally draining experience and take over a year

 

None of these.

 

 

 

Question 33

Which business is an example of a franchise?

 A. Burger King

 

The U.S. Postal Services

 

 

Federal Express

 

 

Sears

 

 

 

Question 34

Which of the following is a harvest strategy, not an exit strategy?

merger

 

 

acquisition

 C.        IPO (initial public offering)

 

 D. franchising

 

 

 

Question 35

Which of the following is not a benefit of franchising to the franchisor?

the minimal number of regulations regarding franchising

higher marketing and promotional costs

 

growth with minimal capital investment

 

	D.	royalties

 

 

 

Question 36

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"?

 

 

Question 37

William Petty's article on harvesting quotes Steven Covey who says, ________.

 

 A. "The  to being effective in life is, 'beginning with the end in mind'."

 

"Your chance to sell or to merge typically occurs within the first two years of the life of the          business."

 

"You may have only one chance to harvest your business."

 

	D.	None of these.

 

 

 

Question 38

________ is the addition of offerings beyond the company's core product or service.

 A. Licensing

 B.        Diversification

 

 

Complementing

 

 

Franchising

 

 

 

Question 39

________, or spreading out the brand among many products and product lines can increase market share, but it can also ________ the company.

 A. Diversification/focus

 

	B.	Diversification/unfocus

	C.	Alliances/focus

 

D. Product line extension/unfocus