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Homework answers / question archive / 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 ________


Los Angeles Mission College - MANEGMENT 013


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








 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
























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










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







growth with minimal capital






royalty payments



 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).




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?





 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?





 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






market­based approach







book value method







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.









 C.        ten










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







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






line promotion







brand extension











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.




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.  




Question 24    

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





 C.        investors






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






a merger







employee buy­out







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 ________.

























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






profit maximizing price







future value







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







Question 34 

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





 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











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."







None of these.




Question 38 

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

 A. Licensing

 B.        Diversification










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















D. Product line extension/unfocus



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