Question 1

In the market approach,the technique to calculate the value of a company is:

Accepted Answer

A) ROI. 
B) P/E. 
C) ROA. 
D) P/A. 
A) ROI. 
B) P/E. 
C) ROA. 
D) P/A. B

Question 2

A business owner who buys a company whose financial statements show a pattern of short-term profitability is guaranteed of getting a good deal.

Accepted Answer

A) True 
 B)False  False

Question 3

The bargaining zone is:

Accepted Answer

A) the area within the bargaining process in which an agreement can be reached. 
B) where the buyer gets the best deal. 
C) where the seller gets the best deal. 
D) None of the above 
A) the area within the bargaining process in which an agreement can be reached. 
B) where the buyer gets the best deal. 
C) where the seller gets the best deal. 
D) None of the above A

Question 4

The market approach to valuing a company relies primarily on the price/earnings ratio of the company in comparison to the average P/E of similar companies.

Accepted Answer

A) True 
 B)False

Question 5

Owners who do not want to sell a business outright,but want to either stay around for a while or surrender control gradually can use a restructuring strategy.

Accepted Answer

A) True 
 B)False

Question 6

The adjusted balance sheet method of valuing a business changes the book value of net worth to reflect actual market value.

Accepted Answer

A) True 
 B)False

Question 7

When it comes to buying an existing business,it is not uncommon to find it:

Accepted Answer

A) overpriced. 
B) difficult to finance. 
C) with accounts receivable worth more than face value. 
D) bargain priced. 
A) overpriced. 
B) difficult to finance. 
C) with accounts receivable worth more than face value. 
D) bargain priced.

Question 8

In general,in negotiations and acquisitions of a business,the buyer seeks to:

Accepted Answer

A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) Both A and B 
D) None of the above 
A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) Both A and B 
D) None of the above

Question 9

Convincing alienated customers to return can be an inexpensive process that doesn't take long.

Accepted Answer

A) True 
 B)False

Question 10

If a banker requires the current loan on a business to be paid at the time of the sale to the new owner,the banker will require a due-on-sale clause in the agreement.

Accepted Answer

A) True 
 B)False

Question 11

To be enforceable,a covenant not to compete must be:

Accepted Answer

A) for the life of the business. 
B) approved by a court of law. 
C) for both direct and indirect competitive businesses. 
D) reasonable in scope. 
A) for the life of the business. 
B) approved by a court of law. 
C) for both direct and indirect competitive businesses. 
D) reasonable in scope.

Question 12

Before purchasing an existing business,an entrepreneur should analyze closely both direct and indirect competitors.

Accepted Answer

A) True 
 B)False

Question 13

Accounts receivable in an existing business:

Accepted Answer

A) are rarely worth their face value. 
B) unlike inventory,are often worth their face value. 
C) appreciate over time due to interest and penalties. 
D) are not a significant consideration when buying an existing business. 
A) are rarely worth their face value. 
B) unlike inventory,are often worth their face value. 
C) appreciate over time due to interest and penalties. 
D) are not a significant consideration when buying an existing business.

Question 14

One reason why an owner is selling the business is because the business location may have become unsatisfactory.

Accepted Answer

A) True 
 B)False

Question 15

When negotiating the deal,the most important thing to remember is:

Accepted Answer

A) terms are more important than the price paid. 
B) to negotiate the lowest possible price. 
C) often the difference in available funds can be made up by collecting accounts payable. 
D) the owner of the business always asks 14-22% more than he/she is willing to take. 
A) terms are more important than the price paid. 
B) to negotiate the lowest possible price. 
C) often the difference in available funds can be made up by collecting accounts payable. 
D) the owner of the business always asks 14-22% more than he/she is willing to take.

Question 16

One of the disadvantages of buying an existing business is that customers may be loyal to previous owners.

Accepted Answer

A) True 
 B)False

Question 17

In a business sale,the seller is looking to:

Accepted Answer

A) negotiate favorable payment terms,preferably over time. 
B) minimize the amount of cash paid up front. 
C) maximize the cash he/she gets from the sale. 
D) get the business at the lowest price possible. 
A) negotiate favorable payment terms,preferably over time. 
B) minimize the amount of cash paid up front. 
C) maximize the cash he/she gets from the sale. 
D) get the business at the lowest price possible.

Question 18

If the firm owns any trademarks,patents,or copyrights,or has built up a positive reputation with customers and suppliers,the business has what is/are called:

Accepted Answer

A) capital. 
B) goodwill. 
C) intangible assets. 
D) market potential. 
A) capital. 
B) goodwill. 
C) intangible assets. 
D) market potential.

Question 19

The ________ is the area within which the two parties can reach an agreement.

Accepted Answer

A) bargaining zone 
B) market 
C) selling zone 
D) buying zone 
A) bargaining zone 
B) market 
C) selling zone 
D) buying zone

Question 20

Describe the earnings approach for valuing a company,outlining the calculation and the strengths and weaknesses of this technique.

Accepted Answer

The earnings approach is more refined th

Exam 7: Buying an Existing Business

In the market approach,the technique to calculate the value of a company is:

A business owner who buys a company whose financial statements show a pattern of short-term profitability is guaranteed of getting a good deal.

The bargaining zone is:

The market approach to valuing a company relies primarily on the price/earnings ratio of the company in comparison to the average P/E of similar companies.

Owners who do not want to sell a business outright,but want to either stay around for a while or surrender control gradually can use a restructuring strategy.

The adjusted balance sheet method of valuing a business changes the book value of net worth to reflect actual market value.

When it comes to buying an existing business,it is not uncommon to find it:

In general,in negotiations and acquisitions of a business,the buyer seeks to:

Convincing alienated customers to return can be an inexpensive process that doesn't take long.

If a banker requires the current loan on a business to be paid at the time of the sale to the new owner,the banker will require a due-on-sale clause in the agreement.

To be enforceable,a covenant not to compete must be:

Before purchasing an existing business,an entrepreneur should analyze closely both direct and indirect competitors.

Accounts receivable in an existing business:

One reason why an owner is selling the business is because the business location may have become unsatisfactory.

When negotiating the deal,the most important thing to remember is:

One of the disadvantages of buying an existing business is that customers may be loyal to previous owners.

In a business sale,the seller is looking to:

If the firm owns any trademarks,patents,or copyrights,or has built up a positive reputation with customers and suppliers,the business has what is/are called:

The ________ is the area within which the two parties can reach an agreement.

Describe the earnings approach for valuing a company,outlining the calculation and the strengths and weaknesses of this technique.

Entrepreneurs: the Driving Force Behind Small Business

Ethics and Social Responsibility: Doing the Right Thing

Creativity and Innovation: Keys to Entrepreneurial Success

Strategic Management and the Entrepreneur

Choosing a Form of Ownership

Franchising and the Entrepreneur

New Business Planning Process: Feasibility Analysis,business Modeling,

Building a Bootstrap Marketing Plan

Creative Use of Advertising and Promotion

Pricing and Credit Strategies

Global Marketing Strategies

E-Commerce and Entrepreneurship

Creating a Solid Financial Plan

Managing Cash Flow

Sources of Equity Financing

Sources of Debt Financing

Location,layout,and Physical Facilities

Supply Chain Management

Managing Inventory

Staffing and Leading a Growing Company

Management Succession and Risk Management Strategies in the Family Business

The Legal Environment: Business Law and Government Regulation

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