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 2 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 3 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 4 12) Franchise royalty fees typically range from ________ to ________ percent with an average of 6.7 percent. A) 3; 13 B) 1; 21 C) 1; 11 D) 3; 11; Answer: C Diff: 3 Page Ref: 205 AACSB: Analytic Skills Learning Obj.: 1 13) When it comes to purchasing products, equipment, and incurring other expenses, the franchiser: A) cannot require the franchisees to buy from the franchise company. B) can set prices franchisees pay for the products but cannot set the retail price the franchisees charge. C) is permitted to set the retail price for the franchisee. D) cannot require franchisees to buy from an "approved" supplier. Answer: B Diff: 2 Page Ref: 206 AACSB: Analytic Skills Learning Obj.: 2 14) Which of the following is not a potential disadvantage of a franchise? A) Unsatisfactory training program B) Limited product line C) Less freedom D) All of the above are potential disadvantages of a franchise. Answer: D Diff: 1 Page Ref: 204-206 AACSB: Reflective Thinking Learning Obj.: 2 15) A franchise myth is that: A) once the franchise is open, the franchisee has autonomy to run the business in what ever way he or she sees fit. B) the owner needs to be hands on. C) the franchise will only expect to be paid when the franchisee is profitable. D) franchises fail at a rate higher that independently owned businesses. Answer: A Diff: 2 Page Ref: 205 AACSB: Analytic Skills Learning Obj.: 2 5 16) Which of the following is an indication of a dishonest franchiser? A) A high-pressure sale B) A "get-rich-quick" scheme C) Attempts to discourage you from getting an attorney to review the contract D) All of the above Answer: D Diff: 1 Page Ref: 207-208 AACSB: Analytic Skills Learning Obj.: 3 17) The FTC's philosophy regarding the Uniform Franchise Disclosure Document (UFDD) focuses on: A) catching and prosecuting abusers of franchise laws. B) verifying the accuracy of FDD information. C) providing information to prospective franchisees and helping them make wise decisions. D) licensing prospective franchisers. Answer: C Diff: 3 Page Ref: 209 AACSB: Analytic Skills Learning Obj.: 3 18) Which of the following should make a potential franchisee suspicious about a franchiser's honesty? A) Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over B) An offer of direct financing of a specific element of the franchise package C) Not providing detailed operational information until 10 days before signing the contract D) Requiring franchisees to spend a certain percentage of profits on advertising Answer: A Diff: 2 Page Ref: 216 AACSB: Reflective Thinking Learning Obj.: 4 19) In addition to reading the franchiser's UFDD, it would be wise for the potential franchisee to seek a franchise that offers which of the following? A) A unique concept or marketing approach B) A registered trademark C) A positive relationship with franchisees D) All of the above Answer: D Diff: 1 Page Ref: 211-216 AACSB: Analytic Skills Learning Obj.: