Question 1

One advantage of the excess-earnings method is that it:

Accepted Answer

A) offers an estimate of goodwill. 
B) increases the profit. 
C) increases the cash. 
D) All of the above 
A) offers an estimate of goodwill. 
B) increases the profit. 
C) increases the cash. 
D) All of the above

Question 2

What financial records should be examined when determining the financial soundness of a company and what should the entrepreneur look for in each?

Accepted Answer

∙ Income Statements and Balance Sheets f

Question 3

The bargaining zone is the area within which the buyer and the seller cannot reach an agreement.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a drawback of the market approach of valuation?

Accepted Answer

A) It does not consider current earnings. 
B) It may under represent earnings. 
C) Its reliability depends on the forecasts of future earnings. 
D) It over emphasizes the value of goodwill. 
A) It does not consider current earnings. 
B) It may under represent earnings. 
C) Its reliability depends on the forecasts of future earnings. 
D) It over emphasizes the value of goodwill.

Question 5

In most business sales,the buyer bears the responsibility of determining whether or not the business is a good value.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a way to smooth the transition of leadership/management from the seller of a business to the buyer?

Accepted Answer

A) Focus on the customer,offer new incentives,improve customer service. 
B) Focus on the employees,listen to them,keep them informed. 
C) Concentrate on operations,updating equipment and changing processes. 
D) Visit your competitors and introduce yourself and get to know them. 
A) Focus on the customer,offer new incentives,improve customer service. 
B) Focus on the employees,listen to them,keep them informed. 
C) Concentrate on operations,updating equipment and changing processes. 
D) Visit your competitors and introduce yourself and get to know them.

Question 7

To avoid a stalled deal,both seller and buyer should go into the negotiation process with:

Accepted Answer

A) income tax returns of past three to five years. 
B) records of accounts payable. 
C) list of objectives ranked in order of priority. 
D) an optimistic attitude. 
A) income tax returns of past three to five years. 
B) records of accounts payable. 
C) list of objectives ranked in order of priority. 
D) an optimistic attitude.

Question 8

Which of the following statements about valuing a business is true?

Accepted Answer

A) The balance sheet technique is the best way to value a business. 
B) Business valuation is partly art and partly science. 
C) Buyers should rely on established "rules of thumb" to decide what a company is worth. 
D) The primary reason buyers purchase existing businesses is to get their current earning potential. 
A) The balance sheet technique is the best way to value a business. 
B) Business valuation is partly art and partly science. 
C) Buyers should rely on established "rules of thumb" to decide what a company is worth. 
D) The primary reason buyers purchase existing businesses is to get their current earning potential.

Question 9

A straight business sale may be worst for a seller who wants to step down and turn over the reins of the company to someone else.

Accepted Answer

A) True 
 B)False

Question 10

One of the biggest mistakes business buyers can make is entering negotiations with only a vague notion of the strategies they will employ.

Accepted Answer

A) True 
 B)False

Question 11

When an entrepreneur purchases an existing business,he or she essentially is purchasing its future profit potential.

Accepted Answer

A) True 
 B)False

Question 12

Explain the market approach to valuing a business.

Accepted Answer

The market approach is also called the p

Question 13

The best method for valuing a business is to use established rules of thumb.

Accepted Answer

A) True 
 B)False

Question 14

An important advantage of buying an existing business is the greater likelihood that it will continue to survive and thrive in the marketplace.

Accepted Answer

A) True 
 B)False

Question 15

The mechanics of most small business sales involve:

Accepted Answer

A) a cash buyout with no financing. 
B) a down payment with a note carried by the seller. 
C) no down payment with a note carried by the seller. 
D) an exchange of one company's stock for another,and stock options for senior managers. 
A) a cash buyout with no financing. 
B) a down payment with a note carried by the seller. 
C) no down payment with a note carried by the seller. 
D) an exchange of one company's stock for another,and stock options for senior managers.

Question 16

What are the sources of potential legal liabilities the purchase might expose?

Accepted Answer

There are three sour

Question 17

The valuation approach that considers the value of goodwill is the:

Accepted Answer

A) balance sheet technique. 
B) excess-earnings method. 
C) discounted future earnings approach. 
D) market approach. 
A) balance sheet technique. 
B) excess-earnings method. 
C) discounted future earnings approach. 
D) market approach.

Question 18

It is important to remember when assessing the financial soundness of a company that:

Accepted Answer

A) if profits are adequate,there will be sufficient funds to pay salaries and fund cash flow. 
B) cash flow is the key financial element in determining financial soundness. 
C) revenues need to equal to twice the debt load in order for the company to be viable. 
D) the buyer is buying the past revenues and profits of the company. 
A) if profits are adequate,there will be sufficient funds to pay salaries and fund cash flow. 
B) cash flow is the key financial element in determining financial soundness. 
C) revenues need to equal to twice the debt load in order for the company to be viable. 
D) the buyer is buying the past revenues and profits of the company.

Question 19

A competent owner is a master of day-to-day operations of the business and can help a buyer to make a smooth transition into business ownership.

Accepted Answer

A) True 
 B)False

Question 20

To avoid a bumpy transition,a business buyer should do the following:

Accepted Answer

A) concentrate on communicating with employees. 
B) be honest with employees. 
C) devote time to selling your vision for the company to its key stakeholders. 
D) All of the above 
A) concentrate on communicating with employees. 
B) be honest with employees. 
C) devote time to selling your vision for the company to its key stakeholders. 
D) All of the above

Exam 7: Buying an Existing Business

One advantage of the excess-earnings method is that it:

What financial records should be examined when determining the financial soundness of a company and what should the entrepreneur look for in each?

The bargaining zone is the area within which the buyer and the seller cannot reach an agreement.

Which of the following is a drawback of the market approach of valuation?

In most business sales,the buyer bears the responsibility of determining whether or not the business is a good value.

Which of the following is a way to smooth the transition of leadership/management from the seller of a business to the buyer?

To avoid a stalled deal,both seller and buyer should go into the negotiation process with:

Which of the following statements about valuing a business is true?

A straight business sale may be worst for a seller who wants to step down and turn over the reins of the company to someone else.

One of the biggest mistakes business buyers can make is entering negotiations with only a vague notion of the strategies they will employ.

When an entrepreneur purchases an existing business,he or she essentially is purchasing its future profit potential.

Explain the market approach to valuing a business.

The best method for valuing a business is to use established rules of thumb.

An important advantage of buying an existing business is the greater likelihood that it will continue to survive and thrive in the marketplace.

The mechanics of most small business sales involve:

What are the sources of potential legal liabilities the purchase might expose?

The valuation approach that considers the value of goodwill is the:

It is important to remember when assessing the financial soundness of a company that:

A competent owner is a master of day-to-day operations of the business and can help a buyer to make a smooth transition into business ownership.

To avoid a bumpy transition,a business buyer should do the following:

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