es15 – Flashcards
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Which of the following statements is incorrect regarding franchising? A) Franchising is growing in popularity in the United States. B) There are some instances in which franchising is not appropriate. C) New technologies are often introduced through franchise systems. D) Franchising, by its very nature, involves the sharing of knowledge between a franchisor and a franchisee. E) The failure rate for franchise systems is relatively high.
answer
C
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According to the textbook, in 2007 over ________ individual franchise outlets were operating in the United States. A) 510,000 B) 765,000 C) 880,000 D) 1.3 million E) 2.0 million
answer
B
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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. A) Licensing B) Joint Venturing C) Contracting D) Subcontracting E) Franchising
answer
E
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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: A) an initial franchise fee and an ongoing royalty B) a one-time franchise fee C) an equity position in the new business D) an ongoing royalty E) an initial franchise fee and an equity position in the new business
answer
A
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According to the textbook, one of the first companies in the United States to utilize franchising was: A) McDonald's B) Singer Sewing Machine C) H Block D) Coca-Cola E) Gold's Gym
answer
B
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There are two distinctly different types of franchise systems: A) product trademark franchise, business arrangement franchise B) product plus franchise, business format franchise C) business design franchise, product improvement franchise D) product extension franchise, business design franchise E) product trademark franchise, business format franchise
answer
E
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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. A) product and trademark B) product extension C) business format D) production plus E) business design
answer
A
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Betty Collins has been a Ford dealer for the past 20 years. Betty owns a: A) business format franchise B) product and trademark franchise C) business design franchise D) product plus franchise E) product and business format franchise
answer
B
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Which of the following statements is incorrect regarding product and trademark franchises? A) Rather than obtaining a royalty or franchise fee, the product and trademark franchisor obtains the majority of its income from selling its products to its dealers or distributors at a markup. B) General Motors establishes product trademark rather than business format franchises. C) Product trademark franchises are by far more popular than business format franchises. D) Product and trademark franchisees are typically permitted to operate in a fairly autonomous manner. E) A product trademark franchise typically connects a single manufacturer with a network of dealers or distributors.
answer
C
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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. A) business extension B) formula driven C) sales extension D) business format E) product and trademark
answer
D
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Which of the following statements is incorrect regarding business format franchises? A) Arby's sells business format franchises. B) A business format franchise can be very rigid and demanding. C) Automotive services and convenience stores are well-known examples of business format franchises. D) In a business format franchise, the franchisor provides a formula for doing business to the franchisee along with training and other forms of support. E) The business format franchisor obtains the majority of its income from selling its products to its dealers at a markup.
answer
E
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A(n) ________ involves the sale of a single franchise for a specific location. A) individual franchise agreement B) one-of-a-kind franchise agreement C) pinpoint franchise agreement D) specific franchise agreement E) precise franchise agreement
answer
A
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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): A) individual franchise agreement B) area franchise agreement C) locality franchise agreement D) district franchise agreement E) neighborhood franchise agreement
answer
B
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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: A) stop making royalty payments if its sales decline B) sell products made by companies other than the franchisor C) offer and sell the franchise to other people in its area D) use its own operating manuals to run its franchise outlets E) stop making royalty payments if it is losing money
answer
C
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The people who buy franchises from master franchises are typically called: A) minor franchisees B) secondary franchisees C) mini-franchisees D) subordinate franchisees E) subfranchisees
answer
E
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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: A) multifaceted franchisee B) super franchisee C) various-unit franchisee D) compound franchisee E) multiple-unit franchisee
answer
E
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Franchising is appropriate when: A) a firm's business methods are not polished, it has a desire to grow, and it is trying to commercialize a technology product B) a firm has a strong trademark, a desire to grow, and a well-designed business method C) a firm is trying to commercialize a technology product, it is well-funded, and it has a desire to grow D) a firm has a weak trademark, it is well-funded, and it has a desire to grow E) a firm has a desire to grow, it has a well-designed business method, and it is well funded
answer
B
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Which of the following companies would not be suitable for franchising? A) College Nannies & Tutors B) Smoothie King C) McDonald's D) H Block E) Home Depot
answer
E
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According to our textbook, which of the following is not a quality to look for in prospective franchisees? A) individual, rather than team-oriented B) ability to follow instructions C) experience in the industry in which the franchisee operates D) ability to operate with minimal supervision E) adequate financial resources and a good credit history
answer
A
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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. A) agency B) stimulus C) control D) leadership E) motivation
answer
A
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According to the textbook, from the franchisor's point of view, the primary disadvantage of franchising is that: A) it is not legal in 11 states B) an organization allows others to profit from its trademark and business method C) franchise organizations consistently makes less money than alternative forms of business ownership D) it typically takes longer to grow an organization via franchising than company-owned stores E) the franchisees, rather than the franchisor, typically makes most of the money
answer
B
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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: A) franchisee owner-incentive B) franchisee impulse C) agency theory D) institutional theory E) franchisee motivation
answer
E
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Which of the following was not identified in the textbook as one of the disadvantages of franchising a business? A) loss of control B) friction with franchisees C) franchisee motivation D) differences in required business skills E) legal expenses
answer
C
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According to the textbook, which of the following is not a cost that is typically associated with buying a franchise? A) intellectual capital fees B) capital requirements C) continuing royalty payment D) advertising fees E) initial franchise fee
answer
A
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Which of the following statement is not correct regarding the costs associated with purchasing a franchise? A) The franchisee typically pays a royalty based on a percentage of weekly or monthly net income. B) Capital costs vary by franchisor, but may include the cost of buying land and building a building. C) Additional fees may be charged for activities such as training staff, providing management expertise when needed, and providing computer assistance. D) Franchisees are often required to pay into a national or regional advertising fund. E) The initial franchise fee varies, depending on the franchisor.
answer
A
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According to the textbook, a franchisee's weekly or monthly royalty fees are typically around ________ of gross income. A) 1% B) 3% C) 5% D) 7% E) 9%
answer
C
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In the majority of cases, a franchisee pays the franchisor a royalty based on: A) a predetermined fixed weekly or monthly amount B) weekly or monthly net income C) the size of the franchise outlet D) weekly or monthly gross income E) the age of the franchise outlet
answer
D
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Which of the following statements is incorrect regarding the franchisor-franchisee relationship? A) A franchisee may be charged a fee for additional training. B) Some franchisors require a new franchisee to pay a "grand opening" fee. C) Franchisees are often required to pay into a national or regional advertising fund. D) Weekly or monthly royalty fees are usually around 2% of net income. E) Franchisees may have to pay a monthly royalty even if the business is losing money.
answer
D
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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: A) franchising is almost a sure way of making a profit B) a franchise agreement is typically easy to exit if expectations aren't met C) franchisors typically encourage creativity on the part of franchisees D) the franchisor typically provides training, technical expertise, and other forms of support E) franchise organizations are consistently more profitable than non- franchise organizations in the same industry
answer
D
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According to the textbook, the main disadvantage of buying a franchise is: A) franchise organizations typically grow slower than non-franchise organizations in the same industry B) franchisors typically provide poor levels of support C) the cost involved D) the service sector of the U.S. economy is waning in importance E) franchising is waning in its popularity
answer
C
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Which of the following is not an advantage of buying a franchise? A) a proven product or service within an established system B) franchisor ongoing support C) availability of financing D) potential for business growth E) duration and nature of the commitment
answer
E
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Which of the following is not a disadvantage of buying a franchise? A) cost of the franchise B) duration and nature of the commitment C) restrictions on creativity D) availability of financing E) potential for failure
answer
D
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The statute that regulates franchising at the federal level is: A) Federal Trade Commission Rule 436 B) Congressional Statute 399 C) SEC Statute 23 D) Congressional Amendment 442 E) SEC Fairness in Franchising Act
answer
A
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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. A) 1 day B) 3 days C) 10 days D) 14 days E) 30 days
answer
D
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Franchisors are required by law to disclose all their costs in a document called the: A) Fairness in Franchising Certificate B) Consistent Franchise Offering Code C) Standardized Franchise Code D) Franchise Disclosure Document E) Franchise Code of Conduct
answer
D
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The Franchise Disclosure Document is accepted in (or by): A) 11 states B) all 50 states, all of Canada, and parts of Mexico C) 39 states and all of Canada D) all 50 states and parts of Canada E) all nations participating in the North America Free Trade Agreement
answer
D
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The FDD contains ________ categories of information. A) 5 B) 15 C) 23 D) 33 E) 41
answer
C
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The document that consummates the sale of a franchise is called the: A) Franchise Disclosure Document B) franchise agreement C) license agreement D) Uniform Franchise Licensing Code E) franchise circular
answer
B
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While franchise agreements vary, each agreement typically contains two sections: A) the statutory agreement and the purchase agreement B) the franchise agreement and the buy agreement C) the buy agreement and the membership agreement D) the procurement agreement and the statutory agreement E) the purchase agreement and the franchise agreement
answer
E
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While franchise agreements vary, each agreement typically contains the franchise agreement and: A) the legal agreement B) the procurement agreement C) the purchase agreement D) the sell agreement E) the conversion agreement
answer
C
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In addition to FTC disclosure requirements, ________ states have laws providing additional protection to franchisees. A) 6 B) 10 C) 15 D) 33 E) 47
answer
C
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According to a recent FTC report, instances of problems between franchisors and their franchisees tend to be: A) prevalent practices B) isolated occurrences C) There have been no reported problems between franchisors and their franchisees. D) prevalent practices for product and trademark franchise systems and isolated occurrences for business format franchise systems E) isolated occurrences for product and trademark franchise systems and prevalent practices for business format franchise systems
answer
B
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International opportunities for franchising are becoming: A) less prevalent B) neither more nor less prevalent C) more prevalent for product and trademark franchise systems and less prevalent for business format franchise systems D) more prevalent E) less prevalent for product and trademark franchise systems and more prevalent for business format franchise systems
answer
D
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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. A) indirect franchise agreement B) global franchise agreement C) concurrent franchise agreement D) direct franchise agreement E) express franchise agreement
answer
D
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Kim Baker just purchased the rights to develop multiple School of Rock franchises in England. Kim just purchased a(n): A) concurrent franchise arrangement B) indirect franchise arrangement C) lateral franchise arrangement D) direct franchise arrangement E) subordinate franchise arrangement
answer
D
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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. A) master B) direct C) subordinate D) concurrent E) multinational
answer
A
