Question 1

A valuation method that is more realistic than the balance sheet because it adjusts book value to reflect actual market value is the:

Accepted Answer

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

Question 2

Which of the following statements concerning the financing of a business purchase is true?

Accepted Answer

A) Often,the business seller is a poor source of financing. 
B) The buyer should be able to make the payments on the loans out of the company's cash flow. 
C) The buyer should begin arranging financing late in the purchasing process,to avoid the processing expenses if the deal falls through. 
D) Traditional lenders tend to be more eager to lend on an existing business than they are with a start-up. 
A) Often,the business seller is a poor source of financing. 
B) The buyer should be able to make the payments on the loans out of the company's cash flow. 
C) The buyer should begin arranging financing late in the purchasing process,to avoid the processing expenses if the deal falls through. 
D) Traditional lenders tend to be more eager to lend on an existing business than they are with a start-up.

Question 3

When buying an existing business,one should remember that:

Accepted Answer

A) it is generally not important to independently evaluate the inventory. 
B) you are always buying goodwill with the tangible assets of the business. 
C) it is as easy to make change in an existing business as it is in a start-up. 
D) the real reason for selling is seldom stated honestly. 
A) it is generally not important to independently evaluate the inventory. 
B) you are always buying goodwill with the tangible assets of the business. 
C) it is as easy to make change in an existing business as it is in a start-up. 
D) the real reason for selling is seldom stated honestly.

Question 4

Which of the following is an intangible asset?

Accepted Answer

A) Building 
B) Machinery 
C) Vehicles 
D) Trademark 
A) Building 
B) Machinery 
C) Vehicles 
D) Trademark

Question 5

Most business buyers can expect to find detailed,accurate,and audited financial records in the companies they are looking at buying.

Accepted Answer

A) True 
 B)False

Question 6

Failing to age accounts receivable could lead a buyer into paying more for a business than it is worth.

Accepted Answer

A) True 
 B)False

Question 7

What guidelines should be kept in mind when deciding how to value a company?

Accepted Answer

There are few hard-and-fast rules in est

Question 8

The biggest source for the best companies to buy is:

Accepted Answer

A) business brokers. 
B) commercial bankers. 
C) trade associations. 
D) the hidden market. 
A) business brokers. 
B) commercial bankers. 
C) trade associations. 
D) the hidden market.

Question 9

The ________ method of valuation assumes that a dollar earned in the future will be worth less than that same dollar today.

Accepted Answer

A) market approach 
B) discounted future earnings approach 
C) asset approach 
D) None of the above 
A) market approach 
B) discounted future earnings approach 
C) asset approach 
D) None of the above

Question 10

When a buyer is reviewing a candidate company's lease arrangements,location and appearance,intangible assets,etc. ,he is answering what basic acquisition question?

Accepted Answer

A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered? 
A) Is the business financially sound? 
B) Why does the owner want to sell? 
C) What is the physical condition of the business? 
D) What legal aspects should be considered?

Question 11

When buying an existing business,the potential buyer should remember that:

Accepted Answer

A) it is a long process and the buyer should be patient. 
B) existing businesses often do not continue to be successful after a change in ownership. 
C) it is often more difficult to find capital for an existing business than it is for a start-up. 
D) he/she will likely have to make significant changes in the work force. 
A) it is a long process and the buyer should be patient. 
B) existing businesses often do not continue to be successful after a change in ownership. 
C) it is often more difficult to find capital for an existing business than it is for a start-up. 
D) he/she will likely have to make significant changes in the work force.

Question 12

The balance sheet technique of determining a business's value uses the company's net worth or owner's equity as the firm's value,but it oversimplifies the valuation process.

Accepted Answer

A) True 
 B)False

Question 13

While there are numerous advantages to buying an existing business,there are also some disadvantages,like the previous owner having created ill will rather than goodwill with customers and suppliers.

Accepted Answer

A) True 
 B)False

Question 14

Any liens against a business must be satisfied by the current owner before the sale can be consummated.

Accepted Answer

A) True 
 B)False

Question 15

"Knocking on the doors" of businesses an entrepreneur would like to buy-although they are not advertised "for sale"-is a waste of time.

Accepted Answer

A) True 
 B)False

Question 16

Accounts receivable are rarely worth face value,and should be "aged" when evaluating a company's assets.

Accepted Answer

A) True 
 B)False

Question 17

Generally speaking,current employees will prove flexible and able to meet whatever changes the new owner desires to make once the business is acquired.

Accepted Answer

A) True 
 B)False

Question 18

What key questions need to be answered in the process of due diligence?

Accepted Answer

The due diligence process involves inves

Question 19

The entrepreneur who buys an existing business must recognize that accounts receivable rarely are worth their "face value."

Accepted Answer

A) True 
 B)False

Question 20

Normally,when buying a business,the seller:

Accepted Answer

A) does not sign a restrictive covenant. 
B) notifies creditors 10 days prior to the sale of the business. 
C) cannot assign his credit arrangements with suppliers to the buyer. 
D) has little formal role or obligation in preparing documents and information necessary to the sale. 
A) does not sign a restrictive covenant. 
B) notifies creditors 10 days prior to the sale of the business. 
C) cannot assign his credit arrangements with suppliers to the buyer. 
D) has little formal role or obligation in preparing documents and information necessary to the sale.

Exam 7: Buying an Existing Business

A valuation method that is more realistic than the balance sheet because it adjusts book value to reflect actual market value is the:

Which of the following statements concerning the financing of a business purchase is true?

When buying an existing business,one should remember that:

Which of the following is an intangible asset?

Most business buyers can expect to find detailed,accurate,and audited financial records in the companies they are looking at buying.

Failing to age accounts receivable could lead a buyer into paying more for a business than it is worth.

What guidelines should be kept in mind when deciding how to value a company?

The biggest source for the best companies to buy is:

The ________ method of valuation assumes that a dollar earned in the future will be worth less than that same dollar today.

When a buyer is reviewing a candidate company's lease arrangements,location and appearance,intangible assets,etc. ,he is answering what basic acquisition question?

When buying an existing business,the potential buyer should remember that:

The balance sheet technique of determining a business's value uses the company's net worth or owner's equity as the firm's value,but it oversimplifies the valuation process.

While there are numerous advantages to buying an existing business,there are also some disadvantages,like the previous owner having created ill will rather than goodwill with customers and suppliers.

Any liens against a business must be satisfied by the current owner before the sale can be consummated.

"Knocking on the doors" of businesses an entrepreneur would like to buy-although they are not advertised "for sale"-is a waste of time.

Accounts receivable are rarely worth face value,and should be "aged" when evaluating a company's assets.

Generally speaking,current employees will prove flexible and able to meet whatever changes the new owner desires to make once the business is acquired.

What key questions need to be answered in the process of due diligence?

The entrepreneur who buys an existing business must recognize that accounts receivable rarely are worth their "face value."

Normally,when buying a business,the seller:

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