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Entrepreneurship Test 2

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College Nannies and Tutors, the company profiled in the opening feature for Chapter 15, was started by Joseph Keeley, a student at St. Thomas University in St. Paul, Minnesota. According to the feature, Keeley met Peter Lytle, the angel investor who funded his startup, at:
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the awards ceremony for a business plan competition that Keeley won
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Which of the following statements is incorrect regarding franchising?
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New technologies are often introduced through franchise systems.
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According to the textbook, in 2007 over ________ individual franchise outlets were operating in the United States.
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765,000
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________ is a form of business ownership in which a firm that already has a successful product or service licenses its trademark and method of doing business to other business in exchange for an initial franchise fee and an ongoing royalty.
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franchising
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Franchising is a form of business ownership in which a firm that already has a successful product or service licenses its trademark and method of doing business to another business in exchange for:
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an initial franchise fee and an ongoing royalty
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According to the textbook, one of the first companies in the United States to utilize franchising was:
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Singer Sewing Machine
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There are two distinctly different types of franchise systems:
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product trademark franchise, business format franchise
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A ________ franchise is an arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name.
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product and trademark
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Betty Collins has been a Ford dealer for the past 20 years. Betty owns a:
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product and trademark franchise
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Which of the following statements is incorrect regarding product and trademark franchises?
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Product trademark franchises are by far more popular than business format franchises.
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Clark Jensen recently opened a Planet Smoothie franchise. So far, he is very satisfied with Planet Smoothie because in exchange for an initial franchise fee and an ongoing royalty payment, Planet Smoothie has provided Clark a formula for doing business along with training, advertising, and other forms of assistance. Clark purchased a ________ franchise.
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business format
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Which of the following statements is incorrect regarding business format franchises?
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The business format franchisor obtains the majority of its income from selling its products to its dealers at a markup.
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A(n) ________ involves the sale of a single franchise for a specific location.
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individual franchise agreement
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Phil Atkinson recently entered into an agreement with Sonic to open seven Sonic Fast-Food Restaurant franchises. According to the agreement that Phil entered into, he has the right to open up to seven Sonic Fast-Food Restaurant franchises within the city limits of Portland, Oregon. Phil has entered into a(n):
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area franchise agreement
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A master franchisee, in addition to having the right to open and operate a specific number of locations in a particular area, also has the right to:
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offer and sell the franchise to other people in its area
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The people who buy franchises from master franchises are typically called:
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subfranchisees
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An individual who owns and operates more than one outlet of the same franchisor, whether through an area or a master franchise agreement, is referred to as a:
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multiple-unit franchisee
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Franchising is appropriate when:
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a firm has a strong trademark, a desire to grow, and a well-designed business method
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Which of the following companies would not be suitable for franchising?
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Home Depot
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The Savvy Entrepreneurial Firm feature in Chapter 15 focuses on Wahoo’s Fish Taco, a franchise organization that offers Mexican food mixed with Brazilian and Asian flavors. According to the feature, one of things the founders of Wahoo did that has contributed to its success is:
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elect to make Wahoo’s a relatively slow growth system, focusing on branding and service quality rather than rapid growth
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According to our textbook, which of the following is not a quality to look for in prospective franchisees?
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individual, rather than team-oriented
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According to a concept called ________ theory, it is more effective for the units of a growing chain to be run by franchisees than by managers, because managers are usually paid a salary and may not be as committed to the success of their individual units as franchisees, who are in effect the owners of the units they manage.
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agency
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According to the textbook, from the franchisor’s point of view, the primary disadvantage of franchising is that:
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an organization allows others to profit from its trademark and business method
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Because franchisees put their personal capital at risk, they are highly motivated to make their franchise outlets successful. According to the textbook, this advantage of franchising a business is referred to as:
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franchisee motivation
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Which of the following was not identified in the textbook as one of the disadvantages of franchising a business?
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franchisee motivation
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The What Went Wrong feature in Chapter 15 focuses on Curves International, the fitness center for women. Over the past three years, nearly one-third of Curves’ 7,700 franchises have closed. Which of the following reasons was not identified in the feature as one of the possible explanations for why so many Curves centers have closed?
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a turnover in the company’s management
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According to the textbook, which of the following is not a cost that is typically associated with buying a franchise?
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intellectual capital fees
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Which of the following statement is not correct regarding the costs associated with purchasing a franchise?
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The franchisee typically pays a royalty based on a percentage of weekly or monthly net income.
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According to the textbook, a franchisee’s weekly or monthly royalty fees are typically around ________ of gross income.
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5%
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In the majority of cases, a franchisee pays the franchisor a royalty based on:
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weekly or monthly gross income
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Which of the following statements is incorrect regarding the franchisor-franchisee relationship?
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Weekly or monthly royalty fees are usually around 2% of net income.
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The Partnering for Success feature in Chapter 15 focuses on how franchise organizations can boost their sales while at the same time reduce their expenses. The technique that the feature recommends to achieve these dual objectives is:
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cobranding
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There are two primary advantages to buying a franchise over other forms of business ownership. First, franchising provides an entrepreneur the ability to own a business using tested and refined business methods, and second:
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the franchisor typically provides training, technical expertise, and other forms of support
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According to the textbook, the main disadvantage of buying a franchise is:
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the cost involved
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Which of the following is not an advantage of buying a franchise?
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duration and nature of the commitment
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Which of the following is not a disadvantage of buying a franchise?
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availability of financing
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The statute that regulates franchising at the federal level is:
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Federal Trade Commission Rule 436
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To avoid making a hasty judgment, a franchisee may not purchase a franchise for ________ from the time the Franchise Disclosure Document is received.
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14 days
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Franchisors are required by law to disclose all their costs in a document called the:
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Franchise Disclosure Document
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The Franchise Disclosure Document is accepted in (or by):
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all 50 states and parts of Canada
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The FDD contains ________ categories of information.
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23
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The document that consummates the sale of a franchise is called the:
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franchise agreement
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While franchise agreements vary, each agreement typically contains two sections:
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the purchase agreement and the franchise agreement
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While franchise agreements vary, each agreement typically contains the franchise agreement and:
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the purchase agreement
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In addition to FTC disclosure requirements, ________ states have laws providing additional protection to franchisees.
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15
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According to a recent FTC report, instances of problems between franchisors and their franchisees tend to be:
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isolated occurrences
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International opportunities for franchising are becoming:
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more prevalent
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more prevalent In regard to international franchising, under a(n) ________, the U.S. franchisor grants the rights to an individual or company (the developer) to develop multiple franchised businesses within a country or territory.
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direct franchise agreement
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Kim Baker just purchased the rights to develop multiple School of Rock franchises in England. Kim just purchased a(n):
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direct franchise arrangement
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In the context of international franchising, under a ________ franchise arrangement, the U.S. firm grants the rights to an individual or company (the master franchisee) to develop one or more franchise businesses and to license others to develop one or more franchise businesses within the country.
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master