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Exam 5: How to Form a Business

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Question 61

Multiple Choice

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Sung owns a dog-walking business that she started in high school. Her first goal was to earn money after school and supplement her allowance. Now that she has finished college and maintains a long client list, she's planning on running the business full time. She keeps all the profits and has kept things simple by posting fliers on the bulletin boards at local stores. Sung's business is a(n)

A) sole proprietorship.
B) franchise.
C) S corporation.
D) partnership.

E) B) and D)
F) B) and C)

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Question 62

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The coattail effect refers to the burden of corporate rules and regulations on franchisees.

A) True
B) False

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Question 63

Multiple Choice

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One disadvantage of ________ is the initial cost of formation.

Kooky Cookies Corporation purchased the Crazy Cookie Company. Although this was initially an acquisition, the merging of these two businesses was a ________ merger. Kooky Cookies went on to purchase several baking product companies. Joining forces with some of its suppliers would represent a ________ merger.

A cooperative consists of people with similar needs who pool their resources for mutual gain.

In rural areas electrical power is often sold by ________ that take advantage of the government's policy to sell them electricity at wholesale rates.

Yoshi operates a shoe store as a sole proprietorship. However, he is in poor health and may be unable to continue running the business. If Yoshi becomes incapacitated, his business

Attributes such as trust and integrity are not something you should get overly concerned about when selecting partners. This is a business decision, not a friendly game of golf.

It is not unusual for members of cooperatives to work for and help manage their cooperative.

If a sole proprietorship fails, the owner may lose whatever was invested in the business, and the owner's personal assets are also at risk.

Indira paid a substantial franchise fee to obtain a Precision Printers franchise in Columbus, Ohio. With the franchise fee behind her, Indira can use her creative talents to make her print shop different and more attractive than other Precision Printers stores in the Columbus area.

The major differences between an S corporation and a limited liability company are limits on the number of owners and the citizenship status of individuals who are owners.

Zach is a franchisee with Digger's Doggies, a chain of hotdog shops. He was doing well until several other Digger's Doggies franchisees got in trouble and were forced to close their shops. Soon afterward, Zach's business declined and was also forced to close. This is an example of

Peter recently invented a new workout program that uses indoor surfboards. His equipment can simulate surfing on waves and is a new favorite core workout in his community. As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years," is good strategy.

GloboTech, Inc., a large manufacturer of laptops, is considering a merger with ChipComm, a leading producer of microprocessors and other computer chips. GloboTech believes such a merger would give it a guaranteed source of needed components, and enable it to have better control over quality. If this merger occurs, it would be an example of a horizontal merger.

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks-and-mortar franchisee businesses.

The strategy of a leveraged buyout is used when employee talent is at a minimum.

One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership.

Starting a new business as a sole proprietorship

In a sole proprietorship, the profits earned by the business are