Key Concept Quiz


1	The advantage of purchasing an existing business is:
		A)	Reduction of risk for the new owner
		B)	Owner can define the nature of the business
		C)	Exact types of physical facilities can be selected by the owner
		D)	Fresh inventory can be obtained and tailored to the market


2	An entrepreneur may locate a business for sale through:
		A)	Word of mouth
		B)	Lawyers and accountants
		C)	Trade journals
		D)	All of the above


3	________ is the most important area to evaluate when buying an existing business.
		A)	Sales and profit trends
		B)	The previous owner
		C)	The financial condition
		D)	Quality of personnel


4	The price on which the purchaser and seller agree is called:
		A)	Asset value
		B)	Capitalization of earnings
		C)	Times earnings
		D)	Market value


5	________ is the method that determines the price of a business at the net balance sheet value of its assets minus the value of its liabilities:
		A)	Market value
		B)	Book value
		C)	Earnings value
		D)	Combination value


6	The purchase price of a business, payment dates and additional conditions and/or provisions in the business transaction should be included in the :
		A)	Transfer agreement
		B)	Partnership agreement
		C)	Purchase agreement
		D)	Title agreement


7	Matilda Johnson is interested in purchasing her friend's cleaning business. Before making the purchase offer, she should:
		A)	Consult a lawyer and an accountant
		B)	Put a down payment on the purchase of the business
		C)	Do nothing and proceed with the transaction
		D)	A and B


8	Several assets of a business may require thorough inspection before closing the purchase transaction and may include:
		A)	Goodwill
		B)	Short-term debt
		C)	Long-term liabilities
		D)	B and C


9	Goodwill is a _________ that should be evaluated and may be included in the sale of a business.
		A)	Long-term liability
		B)	Short-term liability
		C)	Tangible asset
		D)	Intangible asset


10	If a business is not profitable or strong in its financial operations, one should always avoid purchasing it.
		A)	True
		B)	False


11	What might David Clausen have done to avoid the problems he faced after purchasing Barclay Maps?
		A)	A careful evaluation of the financial statements and assets
		B)	Put a down payment on the business before his competitor
		C)	Take additional accounting and marketing courses
		D)	Consulted his spouse


12	One need not be concerned with assessing the validity of financial statements before evaluating the performance of a prospective business purchase.
		A)	True
		B)	False


13	The replacement value method of asset valuation lists the business at the net balance of its assets minus liabilities.
		A)	True
		B)	False


14	The reason that JDS Uniphase relied on business purchases was to:
		A)	Continue product line expansion
		B)	Maintain growth through acquisition
		C)	Buy out the competition
		D)	All of the above


15	What business valuation method relies on multiplying the average earnings by a number between 1 and 10?
		A)	Capitalization of earnings method
		B)	Market value
		C)	Replacement value
		D)	None of the above

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