Small Business Management Entrepreneurship and Beyond 6th Edition by Timothy S. Hatten – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

1. A disadvantage of the direct ownership system used by early manufacturers in the 1830s like McCormick and Singer

was the lack of direct control and control over quality levels.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

–

5.1

KEYWORDS: Bloom’s Knowledge

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2. Franchising dominates the Quick Service Restaurant segment of the U.S. economy.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

3. McCormick and Singer were two of the first franchises in America during the 1800s.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

4. Franchised businesses directly produce almost 6 million jobs.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

5. Nearly 50 percent of all U.S. businesses are franchised.a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

6. Automobile manufacturers have franchisees.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

7. Making products available to consumers through exclusive dealers in a specific geographic region is the purpose of

product-distribution franchising.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.1

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8. Product-distribution franchising is commonly used in fast-food restaurants and lodging establishments, such as hotel

and motel chains.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

9. In comparison to business-format franchising, product-distribution franchising is more of a turnkey approach tofranchising.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.1

10. The biggest advantage of franchising for a franchisee is the marketing expertise that is provided.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.2

KEYWORDS: Bloom’s Knowledge

11. Some franchisors prefer that their franchisees not have experience in the particular field of the franchise.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.2

KEYWORDS: Bloom’s Knowledge

12. Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

13. Franchisors seldom provide financial resources for startup and working capital for inventory.

a. Trueb. False

ANSWER: False

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

14. The primary drawback of franchising to the franchisee is that you must give up some control, some decision-making

power, and some freedom.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

15. One advantage of franchising to the franchisee is that it is relatively easy to terminate a franchise agreement if things

are not going well.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

16. If a franchisee feels that a product, promotion, or policy may not be appropriate for his/her area, the franchisee can

decide to not participate.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

17. A right of first denial states that a franchisee must decline continuing a franchise agreement before the franchisor can

offer the franchise to someone else.a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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KEYWORDS: Bloom’s Knowledge

5.2

18. From the perspective of the franchisor, one of the biggest advantages of offering franchises is the expansion of the

business happening much faster than if the franchisor were in business alone.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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KEYWORDS: Bloom’s Knowledge

5.2

19. Franchisors often have several sources of income built into franchise agreements, including franchise fees, operating

revenue percentages, and product/supplies revenues.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.2

20. One way in which franchisors have dealt with the complexity of serving differing customer tastes covering large

geographic areas is through company owned franchises.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.221. Social media “…can give, it can also take away” according to “Denny’s Social Media Life” on Page 127 of the text.

Denny’s made positive use of Twitter but encountered negative impact from customer use of Facebook.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

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22. The American Franchise Association is a trade association that provides information and services about franchising.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 122

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

23. When individuals have a general idea of the franchise that they are interested in, they should contact the company and

ask for a copy of its disclosure statement.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 122

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

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24. A good question to ask concerning a potential franchise purchase is whether or not the franchise gives exclusive

territory for the length of the agreement.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 123

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

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-25. Because franchisors have lawyers look over the franchise agreement, it is not necessary for a franchisee to pay a

lawyer to do the same thing.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 123

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

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–

26. A potential franchisee may receive only partial use of trademarks, trade names, logos, and other symbols as detailed in

the disclosure statement.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

27. Royalty fees that are paid to the franchisor are usually calculated as a percentage of gross profits.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

28. If an advertising fee is charged to a franchisee, the franchisor is required by law to spend a percentage of the collected

fees in the franchisee’s market.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge29. Franchise agreements are currently written in simple enough language that a lawyer need not be contacted before

signing a franchise agreement.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

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DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

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30. Over the past 25 years, the wording within disclosure statements has gradually become more “legalese” and complex.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

31. The issue of exclusive territory is the subject of much controversy in the franchising world.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

32. U.S. companies facing increased domestic competition are turning to foreign markets such as Canada and Mexico for

expansion opportunities.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 129

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

–

AACSB: Diversity

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.4

KEYWORDS: Bloom’s Knowledge33. When expanding abroad, franchisors must be sensitive to the demographic, cultural, and legal climates of the host

country.

a. True

b. False

ANSWER: True

POINTS: 1

REFERENCES: p. 130

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

–

AACSB: Diversity

STATE STANDARDS: United States

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OH

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DISC: Strategy

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KEYWORDS: Bloom’s Knowledge

5.4

34. With the passage of the North American Free Trade Agreement (NAFTA), franchise opportunities in South America

have become a dominant force in the retailing sector.

a. True

b. False

ANSWER: False

POINTS: 1

REFERENCES: p. 130

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.4

35. The process of gathering and verifying the accuracy of information included in the franchise agreement and all other

information provided by the franchisor is called

a. Deductive reasoning

b. Preemptory

investigation

c. Due diligence

d. Market research

ANSWER: c

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

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NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

5.3

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36. Through the franchise agreement, the

____

management systems, marketing, and financial help.

a. Franchisor

b. Franchise

e

c. Leaser

d. Lessee

ANSWER: b

gains the benefit of the parent company’s expertise, experience,POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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STATE STANDARDS: United States

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

37. A contractual license to operate an individually owned business as a part of a larger chain is known as a/an

a. Franchise

b. Small business contract

c. Chain contract

d. Import contract

ANSWER: a

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

38. The parent company that develops a product or business process and sells the rights is known as the

a. Franchisor

b. Franchisee

c. Company of origin

d. Opening company

ANSWER: a

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

39. The small business person who purchases the franchise in order to sell the product or service is known as the

a. Franchisor

b. Franchisee

c. Company of origin

d. Opening company

ANSWER: b

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge40. Franchises have experienced growth since the 1950s, although they have existed since the

a. Late 1700s

b. Early 1800s

c. Late 1800s

d. Early 1900s

ANSWER: b

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

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STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

41. In 2010, which famous franchise business took the top spot on the Entrepreneur Franchise 500 list?

a. Starbucks

b. McDonalds

c. Subway

d. Burger King

ANSWER: c

POINTS: 1

REFERENCES: p. 110

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

42. Samuel has decided to buy a small pretzel shop, where he will be expected to pay fees and royalties for exclusive

rights to local distribution of pretzels made at the shop. Samuel can best be described as a/an

a. Franchisor

b. Franchisee

c. CEO

d. Social entrepreneur

ANSWER: b

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

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NATIONAL STANDARDS: United States

AACSB: Reflective Thinking

STATE STANDARDS: United States

OH

DISC: Strategy

5.1

KEYWORDS: Bloom’s Knowledge

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–

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GDP of

billion.

43. According to the 2014 Franchise Business Economic Outlook, in total, franchised businesses support jobs that produce

______

a. 293

b. 393

c. 493

d. 593ANSWER: c

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

44.

and

____

____

franchising.

a. Ford, Hoover

b. John Deere, Macy’s

c. McDonald’s, Hilton

d. McCormick, Singer

ANSWER: d

POINTS: 1

REFERENCES: p. 111

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

were two of the first businesspeople to use exclusive agents, which laid the ground for today’s

–

5.1

–

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45. Today, franchising is represented in almost every industry, with more than

a. 225,000

b. 770,000

c. 2.5 million

d. 25 million

ANSWER: b

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

____

U.S. businesses being franchises.

46. Franchised businesses directly produce almost

a. 1 million

____

jobs.

b. 32 million

c. 5 million

d. 10 million

ANSWER: d

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

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5.1KEYWORDS: Bloom’s Knowledge

47. Product-distribution franchising involves licensing the use of its

a. Trade name

b. Business

format

c. Turnkey

d. Dealership

ANSWER: a

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

48. Making products available to consumers in a specific geographic region is the purpose of

a. Product-distribution

b. Business format

c. Turnkey

d. Dealership

ANSWER: a

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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DISC: Strategy

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5.1

KEYWORDS: Bloom’s Knowledge

____

franchising.

49. A type of franchise in which the franchisee agrees to purchase the products of the franchisor or use the franchisor’s

name is called

a. Product-distribution

franchise

b. Business-format franchise

c. Dealership franchise

d. Logo franchise

ANSWER: a

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.1

50. Product franchises and business-format franchises are used by all but which of the following groups?

a. Producersb. Wholesalers

c. Retailers

d. Manufacturer

s

ANSWER: d

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.1

KEYWORDS: Bloom’s Knowledge

51. A type of franchise in which the franchisee adopts the franchisor’s entire method of operation is known as

a. Product franchising

b. Trade-name franchising

c. Business-format

franchising

d. Dealership franchising

ANSWER: c

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.1

KEYWORDS: Bloom’s Knowledge

52. According to the pie-chart figure in the text, which of the following choices accounted for the highest percentage of

franchises?

a. Business

services

b. Lodging

c. Personal services

d. Real estate

ANSWER: a

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 2F43B0C9B08A454A8B9A5945

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.1

KEYWORDS: Bloom’s Knowledge

53. Business-format franchising is commonly used in which of the following?

a. Gasoline stations

b. Soft-drink bottlers

c. Car dealerships

d. Fast-food restaurants and lodging

establishmentsANSWER: d

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.1

KEYWORDS: Bloom’s Knowledge

54. Tom has opened a Ford dealership, where he purchases vehicles from the Ford Company and has full use of the Ford

trade name, brand names, and logos to promote the dealership. Tom has engaged in what type of franchising?

a. Product-distribution

b. Service-distribution

c. Manufacturing-format

franchising

d. Business-plan franchising

ANSWER: a

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

AACSB: Reflective Thinking

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.1

–

–

55. While traveling across country over the summer, Gwen and Audrey stayed in well-known, franchised

accommodations rather than opting for independent, unknown motels. This example demonstrates which advantage to

franchisees?

a. Efficiency

b. Financial assistance

c. Professional

guidance

d. Proven product

ANSWER: d

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

5.2

KEYWORDS: Bloom’s Knowledge

56. An advantage of franchising for the franchisee would be all but which of the following?

a. Product readiness

b. Marketing experience

c. Efficiency

d. Cost of the franchise

ANSWER: d

POINTS: 1

REFERENCES: p. 115LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

57. The greatest benefit to the franchisee is which of the following?

a. Proven product

b. Marketing expertise

c. Professional

guidance

d. Efficiency

ANSWER: a

POINTS: 1

REFERENCES: p. 112

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

58. Providing a source of managerial and technical assistance is an advantage to the franchisee that might not be available

to an independent business owner. This is called

a. An opportunity to learn

b. Market expertise

c. Professional guidance

d. Controlled expansion

ANSWER: c

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

5.2

59. Technical assistance available to franchisees could include all but which of the following?

a. Store layout and design

b. Location analysis

c. Purchasing assistance

d. Advertising campaigns

ANSWER: d

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

5.2

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge60. Saving money on inventory needs, equipment, and supplies is an advantage for the franchisee that is called

a. Recognized standards

b. Marketing expertise

c. Efficiency

d. Professional

guidance

ANSWER: c

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2

KEYWORDS: Bloom’s Knowledge

61. A McDonald’s hamburger that tastes the same at any location in the world is an example of which of the following

benefits to the franchisee?

a. Recognized standards

b. Marketing expertise

c. Efficiency

d. Professional

guidance

ANSWER: a

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

5.2

62.

franchisors will charge a fee and/or a specified percentage of sales revenue.

____

a. A few

b. Some

c. Most

d. All

ANSWER: d

POINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.2

63. A problem with the cost of purchasing a franchise is that the franchisee is usually required to raise most of the capital

a. Before beginning operations

b. Within one month of beginning operations

c. Within six months of beginning operationsd. Within one year of beginning operations

ANSWER: a

POINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

64. Which of the following companies has the highest franchise fee?

a. McDonalds

b. Subway

c. Jiffy Lube

d. Gold’s Gym

ANSWER: a

POINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

65. Because customers view franchises as an entire unit, which of the following can have a negative effect on a

franchisee’s business?

a. Overdependence or unsatisfied expectations

b. Risk of fraud or misunderstanding

c. Problems of termination or transfer

d. Poor performance of other franchisees

ANSWER: d

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.2

66. From the perspective of the ____, the biggest advantage is the expansion of distribution sources with limited equity

investments.

a. Customer

b. Employee

c. Franchisor

d. Franchise

e

ANSWER: c

POINTS: 1

REFERENCES: p. 118LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.2

67. Other franchises under the same franchisor can detrimentally affect a franchise by

a. Tolerating substandard performance

b. Opening a new franchise in another

market

c. Setting higher standards

d. Not making a profit

ANSWER: a

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2

KEYWORDS: Bloom’s Knowledge

68. A statement in the franchise agreement that states that the franchisee must decline to continue the agreement before

the franchisor can offer the franchise to someone else is called a

a. Right of

discontinuance

b. Privilege of rescission

c. Right of first refusal

d. Right of denial

ANSWER: c

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

69. An advantage to the franchisor is all but which of the following?

a. Multiple sources of revenue

b. Expansion with smaller capital investment

c. Bulk purchasing

d. Profit sharing

ANSWER: d

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.270. From the perspective of the franchisor, the biggest advantage of offering franchises is the

a. Expansion with limited equity investments

b. Multiple sources of revenue

c. Level of control of expansion

d. Bulk purchasing

ANSWER: a

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

5.2

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

71. Franchising may be the only viable way for which of the following to expand?

a. Sole proprietorships

b. Businesses with limited capital

c. Businesses wishing to enter international markets

d. Partnerships

ANSWER: b

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

5.2

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

72. A source of revenue that could be built into the franchise agreement might include all but which of the following?

a. Franchise fee

b. Percentage of gross operating revenues

c. Revenue from selling necessary products and supplies to the

franchisee

d. Interest income

ANSWER: d

POINTS: 1

REFERENCES: p. 118

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2

KEYWORDS: Bloom’s Knowledge

73. In comparison with expansion of a corporate chain, expanding via franchise can be accomplished with a/an

management structure.

a. Simpler

b. Equally complex

c. Slightly more complex

____d. Highly complex

ANSWER: a

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

74. Which of the following can significantly reduce costs for a franchisee and thus increase profit margins?

a. Controlled expansion

b. Franchise fees

c. Bulk purchasing

d. Advertising costs

ANSWER: c

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2

KEYWORDS: Bloom’s Knowledge

75. The biggest disadvantage to the franchisor is which of the following?

a. Profit sharing

b. Disputes with franchisees

c. Loss of control

d. Communication breakdowns

ANSWER: c

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.2

76. Which of the following is a way in which franchisors have adapted products to meet the changing needs of customers?

a. Multiproduct shelving

b. Corporate displays

c. Establishing company-owned stores

d. Family branding

ANSWER: c

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2KEYWORDS: Bloom’s Knowledge

77. Franchisors can achieve economies of scale as a result of which of these?

a. Multiple sources of revenue

b. Controlled expansion

c. Motivated franchisees

d. Bulk purchasing

ANSWER: d

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.2

78. Which of the following is the least likely cause of dispute between franchisees and franchisors?

a. Payment of fees

b. Types of products or services

offered

c. Expansion

d. Hours of operation

ANSWER: b

POINTS: 1

REFERENCES: p. 119

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.2

KEYWORDS: Bloom’s Knowledge

79. The major trade association of franchising is the

a. International Franchise Association

b. American Franchise Association

c. American Association of Franchises and

Dealers

d. Global Franchise Association

ANSWER: a

POINTS: 1

REFERENCES: p. 120

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

80. The International Franchise Association publishes

assistance capabilities for each franchise.

a. The Franchise Handbook

____

annually, which gives requirements, expectations, andb. Current Franchises in Business

c. Potential Franchise Opportunities

d. The Franchisee Guide to Selecting a

Franchise

ANSWER: a

POINTS: 1

REFERENCES: p. 120

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.3

81. All of the following are questions that should be answered to determine whether franchising is the appropriate route to

small business ownership except

a. Are you prepared to give up some independence?

b. Do you believe you have the skills to work smoothly with a franchisor?

c. Are you ready to make a short-term commitment to working with a

franchisor?

d. Are you financially prepared to purchase the franchise?

ANSWER: c

POINTS: 1

REFERENCES: p. 120

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

–

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

5.3

–

–

82. The American Association of Franchisees and Dealers (AAFD) has developed a

conduct for franchised businesses.

as a code of ethical business

____

a. Franchisee Bill of Rights

b. Franchisor Code of Conduct

c. Franchisee Constitution

d. Franchisor Disclosure

Statement

ANSWER: a

POINTS: 1

REFERENCES: p. 122

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Ethics

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

83. A priceless source of information about a prospective franchise that cannot be obtained from trade associations or

from the franchisor can come from which of the following?

a. Legal records

b. Current and former

franchiseesc. The franchisor

d. Current customers

ANSWER: b

POINTS: 1

REFERENCES: p. 122

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

84. Franchisors are required by the

a. North American Free Trade

Agreement

b. Uniform Commercial Code

____

c. National Labor Relations Act

d. Federal Trade Commission

ANSWER: d

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

to provide disclosure statements to prospective or actual franchisees.

–

5.3

85. Information that franchisors are required to provide to potential franchisees is contained in which of the following

documents?

a. Franchise agreement

b. Purchasing contract

c. Disclosure statement

d. Profit-and-loss

statement

ANSWER: c

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

86. Disclosure statements identify and provide information on

____

a. 10

b. 20

c. 30

d. 40

ANSWER: b

POINTS: 1

important items.REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

87. Identification of risks, fees, benefits, and restrictions of operating a franchise would be included in the

a. Disclosure

statement

b. Franchise agreement

c. Franchise contract

d. Purchase agreement

ANSWER: a

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.3

KEYWORDS: Bloom’s Knowledge

88. Alicia is considering opening a popular pizza franchise. Before she makes her final decision, she contacts the company

and obtains a document that outlines the risks, fees, benefits, and restrictions of owning the franchise. This document is

known as a

a. Financial statement

b. Contract

c. Franchise agreement

d. Disclosure

statement

ANSWER: d

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

89. A disclosure statement should include a description of the lawsuits in which the franchisor and its officers, directors,

and management personnel have been involved, also known as

a. Litigation

b. Justification

c. Intellectual

property

d. Legal obligations

ANSWER: a

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

–

5.3NATIONAL STANDARDS: United States

–

STATE STANDARDS: United States

–

KEYWORDS: Bloom’s Knowledge

AACSB: Analytic

OH

–

DISC: Strategy

90. A complete statement of the basis for any earnings claims made to the franchisee is referred to as

a. Exclusive territory

b. Financial assistance

c. Earning capacity

d. Financial control

ANSWER: c

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.3

KEYWORDS: Bloom’s Knowledge

91. Whether a franchise is required to carry the full line of the franchisor’s products or whether additional product lines

can be added would fall under the

section of the disclosure statement.

____

a. Purchase obligations

b. Product or service restrictions

c. Personal participation of

franchisees

d. Exclusive territory

ANSWER: b

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

–

5.3

92. Franchisees have recently alleged that the franchisor has overlapped franchise areas. This is a breach of

a. Termination of the franchise

agreement

b. Due diligence

c. The exclusive territory rights

d. Franchise fees

ANSWER: c

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.3

KEYWORDS: Bloom’s Knowledge93. In the section of the disclosure statement titled “Information about franchisees,” the franchisor must provide the names

and addresses of all franchisees located in which proximity to the prospective franchisee?

a. City

b. County

c. State

d. Region

ANSWER: c

POINTS: 1

REFERENCES: p. 126

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

–

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

5.3

–

–

94. The legal contract that binds both parties involved in the franchise is known as the

a. Franchise agreement

b. Disclosure

statement

c. Contract

d. Business obligation

ANSWER: a

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

–

AACSB: Analytic

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

5.3

KEYWORDS: Bloom’s Knowledge

95. Some franchise agreements specifically require the franchisee to have a percentage of the total franchise fee from

which of the following?

a. A venture capitalist

b. A nonborrowed source

c. An accredited bank

d. The Small Business Administration (SBA)

ANSWER: b

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

–

5.3

KEYWORDS: Bloom’s Knowledge

–

–

96. All but which of the following should be thoroughly understood before the franchise agreement is signed?

a. How the agreement can be terminated or renewed

b. What fees have to be paid

c. The rights to exclusive territoryd. All new products the franchisor will develop for the next year

ANSWER: d

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

97. The one-time payment made to become a franchisee is called a/an

a. Franchise agreement

b. Franchise fee

c. Royalty fee

d. Initial investment fee

ANSWER: b

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

98. The ongoing payments that franchisees pay to franchisors⎯which is usually a percentage of gross sales⎯is known as

a/an

a. Franchise agreement

b. Franchise fee

c. Royalty fee

d. Initial investment fee

ANSWER: c

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Knowledge

99. Royalty fees are calculated as a percentage of

a. Gross sales

b. Gross profit

c. Net profit

d. Pretax revenue

ANSWER: a

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

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5.3STATE STANDARDS: United States

–

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

100. Before Walter can officially become a franchisee of an auto repair shop, he must first sign a document that defines

the precise, detailed conditions of the legal relationship between the franchisee and the franchisor. This document is

referred to as the

a. Forced contract

b. Franchise agreement

c. Disclosure statement

d. Due diligence

statement

ANSWER: b

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

101. Before she could open her franchised hair salon, Lori knew she had to pay a one-time fee of $10,000 to the

franchisor. This one-time fee is known as the

a. Franchise fee

b. Industry fee

c. Royalty fee

d. Due diligence fee

ANSWER: a

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

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DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.3

102. Most franchise contracts run

a. Indefinitely

b. From 1 to 5 years

c. From 15 to 20 years

d. From 5 to 15 years

ANSWER: d

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

103. Before signing a franchise agreement, a franchisee should make sure that the franchisor must show

to terminate

____the contract

a. Real cause

b. Due diligence

c. Good cause

d. Cause clause

ANSWER: c

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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KEYWORDS: Bloom’s Knowledge

5.3

104. Which of the following sections in the franchise agreement contains information on rights of first refusal, advertising

restrictions, and performance quotas?

a. Termination of the franchise

agreement

b. Terms and renewal of the agreement

c. Exclusive territory

d. Franchise, advertising, and royalty fees

ANSWER: c

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

AACSB: Analytic

STATE STANDARDS: United States

OH

–

DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.3

–

–

105. Overseas franchising has become a major activity for U.S. companies facing increased

a. Taxes

b. Domestic competition

c. Regulation

d. Domestic lawsuits

ANSWER: b

POINTS: 1

REFERENCES: p. 129

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

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AACSB: Diversity

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.4

KEYWORDS: Bloom’s Knowledge

106. Because it is close in proximity and its markets are similar,

____

franchises.

is an increasingly attractive market for U.S.

a. France

b. Canada

c. Cubad. Great Britain

ANSWER: b

POINTS: 1

REFERENCES: p. 129

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

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AACSB: Diversity

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Knowledge

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5.4

107. In ____, federal law does not seek to regulate the relationship between franchisor and franchisee, but the franchisee

must receive full information at least 10 days before execution of the franchise agreement.

a. Russia

b. China

c. Brazil

d. France

ANSWER: c

POINTS: 1

REFERENCES: p. 130

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

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AACSB: Diversity

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

–

KEYWORDS: Bloom’s Knowledge

5.4

Scenario 5-1. Connie is considering opening a small bakery called Connie’s Cookie Cupboard. She loves to bake cookies.

Family and friends have told her she should consider opening a small business using her baking skills. Connie has no

business experience and no idea where to start in opening her own business. She also has very few funds available. One

day she is glancing through the newspaper and notices an ad for a bakery franchise that would like to open an outlet in the

local mall. This franchise provides everything from equipment to packaging to full business services. She decides to look

into the opportunity further.

108. In Scenario 5-1 above, all but which of the following would be a major advantage for Connie in choosing to purchase

a franchise as opposed to opening her own business?

a. Marketing expertise

b. Managerial assistance

c. Proven product

d. The cost of the

franchise

ANSWER: d

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

–

OH

DISC: Strategy

5.2

KEYWORDS: Bloom’s Comprehension

–

109. In Scenario 5-1 above, which of the following would be the major disadvantage for Connie in purchasing a

franchise?

a. Potential for business growthb. Restrictions on her freedom and creativity

c. Marketing expertise

d. Quality control standards

ANSWER: b

POINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

–

NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

5.2

110. In Scenario 5-1 above, which of the following types of franchises is the bakery franchise?

a. Product franchising

b. Business-format

franchising

c. Service franchising

d. Joint venture

ANSWER: b

POINTS: 1

REFERENCES: p. 113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.1

KEYWORDS: Bloom’s Comprehension

111. In Scenario 5-1 above, which of the following advantages from the franchisor would benefit Connie the most?

a. Quality product

b. Efficiency

c. Professional guidance

d. An opportunity to learn

ANSWER: c

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

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NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

5.2

112. In Scenario 5-1 above, all but which of the following would be disadvantages for Connie if she chose to use

franchising?

a. Problems of termination or transfer

b. Poor performance of other

franchises

c. The cost of the franchise

d. Marketing expertise

ANSWER: dPOINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

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NATIONAL STANDARDS: United States

–

AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

–

DISC: Strategy

5.2

KEYWORDS: Bloom’s Comprehension

Scenario 5-2. Connie is considering opening a small bakery called Connie’s Cookie Cupboard. She loves to bake cookies.

Family and friends have told her she should consider opening a small business using her baking skills. Connie has no

business experience and no idea where to start in opening her own business. She also has very few funds available. One

day she is glancing through the newspaper and notices an ad for a bakery franchise that would like to open an outlet in the

local mall. This franchise provides everything from equipment to packaging to full business services. She decides to look

into the opportunity further.

Connie decides to pursue her franchise opportunity further. The bakery franchise looks promising. Since she has a limited

amount of funds, no business experience, and no idea how to start a new business, she is seriously considering purchasing

the bakery franchise located in the local mall. She obtains a copy of the document that will legally bind her.

113. Refer to Scenario 5-2. The document that she is carefully considering is the

a. Franchise legal contract

b. Franchise agreement

c. Business contract

d. Partnership agreement

ANSWER: b

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

–

OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Comprehension

114. In Scenario 5-2 above, as Connie is reading through the agreement, she sees that a percentage of her gross sales will

be paid to the franchisor. These are called

a. Franchise fees

b. Royalty fees

c. Advertising

fees

d. Operation fees

ANSWER: b

POINTS: 1

REFERENCES: p. 127

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

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5.3

NATIONAL STANDARDS: United States

AACSB: Reflective Thinking

STATE STANDARDS: United States

OH

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

–

–

–

115. In Scenario 5-2 above, Connie is concerned that the bakery franchise not open other outlets within 10 miles of the

mall. She is concerned abouta. Termination of the franchise

agreement

b. Exclusive territory

c. Terms and renewal of the agreement

d. Mutual territory

ANSWER: b

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

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DISC: Strategy

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KEYWORDS: Bloom’s Comprehension

5.3

116. In Scenario 5-2 above, after reading through the agreement, everything seems clear to Connie. Is there anyone else

she should have read the agreement?

a. Her friends at work

b. Her CPA and lawyer

c. Her friends and a lawyer

d. Her friends and her CPA

ANSWER: b

POINTS: 1

REFERENCES: p. 128

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

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5.3

NATIONAL STANDARDS: United States

AACSB: Reflective Thinking

STATE STANDARDS: United States

OH

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

–

–

–

117. In Scenario 5-2 above, the FTC requires all franchisors to provide which of the following for potential franchise

owners?

a. Statements of information

b. Income statements

c. Disclosure statements

d. Franchise statements

ANSWER: c

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Reflective Thinking

STATE STANDARDS: United States

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OH

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DISC: Strategy

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KEYWORDS: Bloom’s Comprehension

5.3

118. Describe the two types of franchising systems, explain how they differ, and give an example of each.ANSWER: ∙ Product franchising allows franchisee to buy products or use the trade name.

∙ Connects a single supplier with many dealers throughout a specific geographic region.

∙ An example would be Ford dealerships

∙ Business format is a turnkey approach

Franchisors sell the products as well as the entire way of doing business, including

operation procedures, marketing packages, buildings and equipment, and full business

services.

∙ An example would be Holiday Inn

∙

POINTS: 1

REFERENCES: p. 112-113

LEARNING OBJECTIVES: Cognero 8EFAEBAB567F48B1855BAEBC

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

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DISC: Strategy

KEYWORDS: Bloom’s Comprehension

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5.1

119. List and describe three major advantages of franchising for the franchisee.

ANSWER: ∙ Proven Product

∙ Efficiency

∙ Marketing expertise

∙ Potential for business growth

∙ Professional guidance

∙ Recognized standards

∙ Opportunity to learn

POINTS: 1

REFERENCES: p. 115

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

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5.2

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

120. List and describe three major disadvantages to the franchisee when considering franchising.

ANSWER: ∙ Cost of the franchise

∙ Restrictions on freedom or creativity

∙ Risk of fraud or misunderstanding

∙ Problems of termination or transfer

∙ Poor performance of other franchises

POINTS: 1

REFERENCES: p. 117

LEARNING OBJECTIVES: Cognero B8C2832F07DA472B8CE280AE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

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5.2

121. After finding a franchise that a small business owner would consider purchasing, discuss three questions that should

be asked.ANSWER: ∙ Did the lawyer approve the contract?

∙ Is everything legal in the state, county, and city?

∙ Is exclusive territory included?

Is the franchise involved with any other franchise companies handling similar

merchandise or services?

∙ How can the franchise be terminated?

∙ If the franchise is sold, will goodwill be compensated?

∙

POINTS: 1

REFERENCES: p. 123

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

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5.3

122. Explain why overseas franchising has become a major activity for U.S. companies.

ANSWER: ∙ Saturated domestic markets

∙ Less crowded foreign markets

∙ Underserved foreign markets

POINTS: 1

REFERENCES: p. 129

LEARNING OBJECTIVES: Cognero 8D0FE0319FDD45C7B26E7A36

NATIONAL STANDARDS: United States

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AACSB: Diversity

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.4

KEYWORDS: Bloom’s Comprehension

123. List at least three questions that individuals should ask themselves to determine whether franchising is the

appropriate route to small business ownership.

ANSWER:

How much equity capital will you need to purchase the franchise and operate it until

your income equals your expenses?

Are you prepared to give up some independence of action to secure the advantages

offered by the franchise?

Do you really believe you have the innate ability, training, and experience to work

smoothly and profitably with the franchisor, employees, and customers?

∙ Are you ready to make a long-term commitment to working with this franchisor?

∙

∙

∙

POINTS: 1

REFERENCES: p. 122

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

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5.3

KEYWORDS: Bloom’s Comprehension

124. When considering a franchise, list at least three questions that should be considered to analyze the market in which

the franchise will be operating.ANSWER:

∙

∙

∙

∙

Does the product or service have a market in your territory at the prices that you will

have to charge?

Will the population in your proposed territory increase, remain static, or decrease over

the next five years?

Will the product or services you are considering be in greater demand, in about the same

demand, or in less demand five years from now?

What competition already exists in your territory for the product or service you

contemplate selling?

POINTS: 1

REFERENCES: p. 124

LEARNING OBJECTIVES: Cognero D59C52DAAE2E40D78E4B55CE

NATIONAL STANDARDS: United States

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AACSB: Analytic

STATE STANDARDS: United States

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OH

–

DISC: Strategy

KEYWORDS: Bloom’s Comprehension

–

5.3