Question 1

Which one of the following is not a goal of a buyer?

Accepted Answer

A) Buying the business at the lowest price possible 
B) Outsmarting the seller 
C) Negotiating favorable payment terms 
D) Minimizing the amount of cash paid out front 
A) Buying the business at the lowest price possible 
B) Outsmarting the seller 
C) Negotiating favorable payment terms 
D) Minimizing the amount of cash paid out front

Question 2

The first step an entrepreneur should take when acquiring an existing business is to:

Accepted Answer

A) explore financing options. 
B) prepare a list of potential candidates. 
C) analyze his/her skills,abilities,and interests in an honest self-audit. 
D) contact existing business owners in the area and ask if their companies are for sale. 
A) explore financing options. 
B) prepare a list of potential candidates. 
C) analyze his/her skills,abilities,and interests in an honest self-audit. 
D) contact existing business owners in the area and ask if their companies are for sale.

Question 3

The valuation method that is commonly used,but tends to oversimplify the valuation process,is called:

Accepted Answer

A) the excess-earnings method. 
B) the balance sheet method. 
C) the capitalization method. 
D) the market approach. 
A) the excess-earnings method. 
B) the balance sheet method. 
C) the capitalization method. 
D) the market approach.

Question 4

In a business sale,the buyer seeks to:

Accepted Answer

A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) minimize the amount of cash paid up front. 
D) All of the above 
A) get the business at the lowest price possible. 
B) negotiate favorable payment terms,preferably over time. 
C) minimize the amount of cash paid up front. 
D) All of the above

Question 5

Business evaluations based on balance sheet methods offer one key advantage: they consider the future earning potential of the business.

Accepted Answer

A) True 
 B)False

Question 6

How does one value a company using the balance sheet method? Why would an entrepreneur choose this method of valuation?

Accepted Answer

The balance sheet method computes the bo

Question 7

In the excess-earnings approach to business valuation,the earnings of comparable companies are needed to set the valuation of the company.

Accepted Answer

A) True 
 B)False

Question 8

The inventory in an existing business:

Accepted Answer

A) is always current and salable. 
B) usually appreciate over time,making the business a bargain. 
C) needs to be checked for age and salability. 
D) is usually stated honestly and does not need independent auditing. 
A) is always current and salable. 
B) usually appreciate over time,making the business a bargain. 
C) needs to be checked for age and salability. 
D) is usually stated honestly and does not need independent auditing.

Question 9

High inventory levels could cause a business to be profitable but not have adequate cash flow.

Accepted Answer

A) True 
 B)False

Question 10

A buyer should never trust the firm's balance sheet evaluation of inventory but should conduct an independent assessment of inventory age and salability.

Accepted Answer

A) True 
 B)False

Question 11

An agreement between a business seller and the buyer,in which the seller agrees not to open a competing business within a specific time period and geographic area,is called a:

Accepted Answer

A) nondisclosure statement. 
B) restrictive covenant. 
C) bulk transfer. 
D) letter of intent. 
A) nondisclosure statement. 
B) restrictive covenant. 
C) bulk transfer. 
D) letter of intent.

Question 12

Which of the following is not a critical area of business that is investigated during due diligence?

Accepted Answer

A) Motivation 
B) Employee issues 
C) Asset valuation 
D) Legal issues 
A) Motivation 
B) Employee issues 
C) Asset valuation 
D) Legal issues

Question 13

Goodwill is a capital asset that the business buyer cannot depreciate or amortize for tax purposes.

Accepted Answer

A) True 
 B)False

Question 14

One of the "rules" of successful negotiations is "not everything is negotiable."

Accepted Answer

A) True 
 B)False

Question 15

Perhaps the ideal source of financing the purchase of an existing business is:

Accepted Answer

A) the seller. 
B) the Small Business Administration. 
C) a venture banker. 
D) your local bank. 
A) the seller. 
B) the Small Business Administration. 
C) a venture banker. 
D) your local bank.

Question 16

If the corporation,rather than the business seller,signs a restrictive covenant,the seller may not be bound by its terms.

Accepted Answer

A) True 
 B)False

Question 17

With an existing business,the new owner can depend on employees to help him/her make money while he/she is learning the business.

Accepted Answer

A) True 
 B)False

Question 18

One advantage of the excess-earnings method is that it offers an estimate of goodwill.

Accepted Answer

A) True 
 B)False

Question 19

Once an entrepreneur has evaluated him/herself,the next step in the acquisition process would be to:

Accepted Answer

A) explore financing options. 
B) prepare a list of potential candidates and investigate them. 
C) work on a smooth transition. 
D) evaluate the physical condition of the business. 
A) explore financing options. 
B) prepare a list of potential candidates and investigate them. 
C) work on a smooth transition. 
D) evaluate the physical condition of the business.

Question 20

A new owner of an existing business can generally introduce change and innovation almost as easily as if the company was a new business start-up.

Accepted Answer

A) True 
 B)False

Exam 7: Buying an Existing Business

Which one of the following is not a goal of a buyer?

The first step an entrepreneur should take when acquiring an existing business is to:

The valuation method that is commonly used,but tends to oversimplify the valuation process,is called:

In a business sale,the buyer seeks to:

Business evaluations based on balance sheet methods offer one key advantage: they consider the future earning potential of the business.

How does one value a company using the balance sheet method? Why would an entrepreneur choose this method of valuation?

In the excess-earnings approach to business valuation,the earnings of comparable companies are needed to set the valuation of the company.

The inventory in an existing business:

High inventory levels could cause a business to be profitable but not have adequate cash flow.

A buyer should never trust the firm's balance sheet evaluation of inventory but should conduct an independent assessment of inventory age and salability.

An agreement between a business seller and the buyer,in which the seller agrees not to open a competing business within a specific time period and geographic area,is called a:

Which of the following is not a critical area of business that is investigated during due diligence?

Goodwill is a capital asset that the business buyer cannot depreciate or amortize for tax purposes.

One of the "rules" of successful negotiations is "not everything is negotiable."

Perhaps the ideal source of financing the purchase of an existing business is:

If the corporation,rather than the business seller,signs a restrictive covenant,the seller may not be bound by its terms.

With an existing business,the new owner can depend on employees to help him/her make money while he/she is learning the business.

One advantage of the excess-earnings method is that it offers an estimate of goodwill.

Once an entrepreneur has evaluated him/herself,the next step in the acquisition process would be to:

A new owner of an existing business can generally introduce change and innovation almost as easily as if the company was a new business start-up.

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

Filters