MANA 3325 chapter 7 Queations With 100% Correct
Answers.
1) The due diligence process of analyzing and evaluating an existing business
________.
A) may be just as time consuming as the development of a comprehensive
business plan for a start-up
B) helps to determine if the company will generate sufficient cash to pay for itself
and leave you with a suitable rate of return on your investment
C) helps to determine what the company's potential for success is
D) All of the above
D) All of the above
2) When done correctly, the due diligence process will ________.
A) reveal both the positive and negative aspects of an existing business
B) be time consuming and expensive
C) most often result in the purchase of the business
D) rarely prove to be beneficial
A) reveal both the positive and negative aspects of an existing business
3) Advantages to buying an existing business that you do not have with a startup
include ________.
A) greater access to venture capital
B) the opportunity to participate in a national advertising campaign
C) inventory is in place and trade credit is established
D) easy implementation of innovations and changes from past policies
C) inventory is in place and trade credit is established
4) Which of the following is a potential disadvantage of purchasing an existing
business?
A) The employees inherited with the business may not be suitable.
B) The previous owner may have created ill will among the company's customers.
C) Equipment and facilities may be obsolete or inefficient.
D) All of the above
D) All of the above
5) When evaluating the assets of an existing business, the inventory ________.
A) is always current and salable
B) usually appreciates over time, making the business a bargain
C) should be judged on the basis of its market value, not its book value
D) is usually stated honestly and does not need an independent audit
C) should be judged on the basis of its market value, not its book value
) An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
6) An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
Age of Accounts Amount Probability of Collection
0 - 30 days $12,000 .96
31 - 60 days $ 4,000 .87
, 61 - 90 days $ 2,500 .71
91 - 120 days $ 1,400 .65
121+ days $ 800 .24
How much should this potential buyer be willing to pay for these accounts
receivable?
A) Nothing; a buyer should never purchase existing accounts receivable.
B) $20,700
C) $17,877
D) Not enough information given to determine
C) $17,877
7) The process of investigating the details of a company that is for sale to
determine the strengths, weaknesses, opportunities and threats facing it is
known as the ________ process.
A) hidden market
B) due diligence
C) skimming
D) business assessment
B) due diligence
21) Which of the following is not a stage in acquiring a business?
A) due diligence
B) negotiation
C) valuation
D) transition
C) valuation
22) The first stage in acquiring a business is ________.
A) search
B) due diligence
C) valuation
D) negotiation
A) search
23) Roughly ________ businesses change ownership each year.
A) 200,000
B) 300,000
C) 400,000
D) 500,000
D) 500,000
24) Negotiation take place ________.
A) throughout the five stages in acquiring a business
B) in the due diligence stage
C) in the valuation stage
D) in the transition stage
A) throughout the five stages in acquiring a business
25) The letter of intent is a ________ document.
A) binding
B) nonbinding
Answers.
1) The due diligence process of analyzing and evaluating an existing business
________.
A) may be just as time consuming as the development of a comprehensive
business plan for a start-up
B) helps to determine if the company will generate sufficient cash to pay for itself
and leave you with a suitable rate of return on your investment
C) helps to determine what the company's potential for success is
D) All of the above
D) All of the above
2) When done correctly, the due diligence process will ________.
A) reveal both the positive and negative aspects of an existing business
B) be time consuming and expensive
C) most often result in the purchase of the business
D) rarely prove to be beneficial
A) reveal both the positive and negative aspects of an existing business
3) Advantages to buying an existing business that you do not have with a startup
include ________.
A) greater access to venture capital
B) the opportunity to participate in a national advertising campaign
C) inventory is in place and trade credit is established
D) easy implementation of innovations and changes from past policies
C) inventory is in place and trade credit is established
4) Which of the following is a potential disadvantage of purchasing an existing
business?
A) The employees inherited with the business may not be suitable.
B) The previous owner may have created ill will among the company's customers.
C) Equipment and facilities may be obsolete or inefficient.
D) All of the above
D) All of the above
5) When evaluating the assets of an existing business, the inventory ________.
A) is always current and salable
B) usually appreciates over time, making the business a bargain
C) should be judged on the basis of its market value, not its book value
D) is usually stated honestly and does not need an independent audit
C) should be judged on the basis of its market value, not its book value
) An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
6) An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
Age of Accounts Amount Probability of Collection
0 - 30 days $12,000 .96
31 - 60 days $ 4,000 .87
, 61 - 90 days $ 2,500 .71
91 - 120 days $ 1,400 .65
121+ days $ 800 .24
How much should this potential buyer be willing to pay for these accounts
receivable?
A) Nothing; a buyer should never purchase existing accounts receivable.
B) $20,700
C) $17,877
D) Not enough information given to determine
C) $17,877
7) The process of investigating the details of a company that is for sale to
determine the strengths, weaknesses, opportunities and threats facing it is
known as the ________ process.
A) hidden market
B) due diligence
C) skimming
D) business assessment
B) due diligence
21) Which of the following is not a stage in acquiring a business?
A) due diligence
B) negotiation
C) valuation
D) transition
C) valuation
22) The first stage in acquiring a business is ________.
A) search
B) due diligence
C) valuation
D) negotiation
A) search
23) Roughly ________ businesses change ownership each year.
A) 200,000
B) 300,000
C) 400,000
D) 500,000
D) 500,000
24) Negotiation take place ________.
A) throughout the five stages in acquiring a business
B) in the due diligence stage
C) in the valuation stage
D) in the transition stage
A) throughout the five stages in acquiring a business
25) The letter of intent is a ________ document.
A) binding
B) nonbinding
