MGMT 3850 CHAPTER 6 HOMEWORK QUESTION AND ANSWERS

MGMT 3850 CHAPTER 6 HOMEWORK
QUESTION AND ANSWERS
Essentials of Entrepreneurship & Small Business Mgmt., 7e (Scarborough)
Chapter 6 Franchising and the Entrepreneur

1) A franchise is a system of distribution in which semi-independent business owners pay
________ and ________ to a parent company in return for the right to become identified with its
trademark, to sell its product or services, and often to use its business format and system.
A) a percentage of sales; royalties
B) upfront costs; incremental costs
C) royalties; monthly consulting charges
D) fees; royalties
Answer: D
Diff: 2 Page Ref: 195
AACSB: Analytic Skills
Learning Obj.: 1

2) Franchises total annual sales represent nearly ________ percent of total annual sales and
employ nearly one in ________ workers in the Unities Sates in more than 300 industries.
A) 8: 17
B) 12: 8
C) 17; 8
D) 2: 21
Answer: C
Diff: 3 Page Ref: 195
AACSB: Analytic Skills
Learning Obj.: 1

3) ________ franchising involves providing the franchisee with a complete business system,
with an established name, the building layout and design, accounting systems, and other
elements while ________ franchising allows the franchisee to use the franchiser's trade name
without distributing the products exclusively under the franchiser's name.
A) Product distribution; trade name
B) Trade name; pure
C) Pure; trade name
D) Pure; product distribution
Answer: C
Diff: 3 Page Ref: 196-197
AACSB: Analytic Skills
Learning Obj.: 1




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,4) McDonald's is an example of a ________ franchise.
A) conversion forms
B) trade name
C) product distribution
D) pure
Answer: D
Diff: 2 Page Ref: 196-197
AACSB: Reflective Thinking
Learning Obj.: 1

5) Benefits of involvement in a franchise experience include:
A) management training and support.
B) brand name appeal and standardization of goods and services.
C) national advertising exposure and financial assistance.
D) All of the above
Answer: D
Diff: 1 Page Ref: 198-202, 204
AACSB: Analytic Skills
Learning Obj.: 1

6) Which of the following is not a potential advantage of franchising for the franchisee?
A) Management training and assistance
B) National advertising program
C) Centralized buying power
D) Limited product line
Answer: D
Diff: 1 Page Ref: 198-202, 204
AACSB: Analytic Skills
Learning Obj.: 1

7) Franchisers generally do which of the following regarding financial assistance to franchisees?
A) Provide direct financing.
B) Assist in finding financing and occasionally provide direct assistance in a specific area.
C) Waive royalty fees for franchisees not making an adequate profit.
D) Franchisers provide no assistance because having or finding financing is a requirement for
qualifying for a franchise.
Answer: B
Diff: 2 Page Ref: 200-201
AACSB: Analytic Skills
Learning Obj.: 1




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, 8) A significant advantage a franchisee has over an independent business is the participation in
the franchisor's ________ largely due to the ________ the franchise offers.
A) centralized buying power: buying insight
B) centralized buying power; brand protection
C) centralized buying power: economies of scale
D) economies of scale: territorial protection
Answer: C
Diff: 2 Page Ref: 202
AACSB: Analytic Skills
Learning Obj.: 1

9) Some franchisors offer ________ to give existing franchisees the right to exclusive
distribution of brand name goods or services within a particular geographic area.
A) territorial protection
B) exclusive rights
C) guaranteed protection
D) exclusivity
Answer: A
Diff: 2 Page Ref: 202
AACSB: Analytic Skills
Learning Obj.: 1

10) The failure rate for franchises is:
A) higher than the average rate for new businesses.
B) no different from the rate for new businesses.
C) lower than the average rate for new businesses.
D) indeterminable because of the Right to Privacy Act.
Answer: C
Diff: 2 Page Ref: 202, 204
AACSB: Analytic Skills
Learning Obj.: 1

11) A recent study reports that the success rate of franchisees increases when a franchise system:
A) requires franchisees to have prior industry experience.
B) requires franchisees to actively manage their operations.
C) has built a strong brand name with training programs to improve knowledge and skills.
D) All of the above increase the rate of success.
Answer: D
Diff: 1 Page Ref: 204
AACSB: Analytic Skills
Learning Obj.: 1




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