Chapter 5—Options for Organizing Small and Large Businesses.rtf by handongqp

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									Chapter 5—Options for Organizing Small and Large Businesses


COMPLETION

     Directions: Complete the following using the terms listed.

        A. sole proprietorship
        B. partnership
        C. corporation
        D. merger
        E. acquisitions
        F. horizontal merger
        G. conglomerate merger
        H. outside directors
        I. vertical merger
        J. small business
        K. business plan
        L. alien corporation
        M. domestic corporation
        N. franchising
        O. corporate charter

  1. The form of business ownership that is subject to the least legal red tape is the _____.

     ANS: A

     DIF: 1                 REF: p. 180            OBJ: TYPE: KN

  2. If Chrysler and Ford were to merge, it would be an example of a(n) _____.

     ANS: F

     DIF: 1                 REF: p. 187            OBJ: TYPE: AP

  3. The form of business ownership that establishes the firm as a separate legal entity is the _____.

     ANS: C

     DIF: 1                 REF: p. 182            OBJ: TYPE: KN

  4. If Anheuser-Busch were to acquire a bottling/canning firm, it would be an example of a(n) _____.

     ANS: I
     DIF: 1                 REF: p. 187            OBJ: TYPE: AP

  5. _____ are people on the board of directors of a corporation, but are not employed by the corporation.

     ANS: H
     DIF: 1                 REF: p. 185            OBJ: TYPE: AP
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 6. A(n) _____ refers to two or more firms that combine to form one company.

      ANS: D

      DIF: 1               REF: p. 187           OBJ: TYPE: KN

 7. A(n) _____ occurs when one firm purchases the property and assumes the obligations of another.

      ANS: E

      DIF: 1               REF: p. 187           OBJ: TYPE: KN

 8. A merger of firms in unrelated industries is called _____.

      ANS: G

      DIF: 1               REF: p. 187           OBJ: TYPE: KN

 9. When a corporation merges with another to assure adequate raw materials it is called a(n) _____.

      ANS: I

      DIF: 1               REF: p. 187           OBJ: TYPE: KN

10. A(n) _____ is an association of two or more persons who operate a business as co-owners.

      ANS: B

      DIF: 1               REF: p. 181           OBJ: TYPE: KN

11. A(n) ___________ is one that does business in a foreign country.

      ANS: L

      DIF: 1               REF: p. 183           OBJ: TYPE: KN

12. ______________ is a contractual agreement that specifies the methods by which a dealer can produce
    and market a suppliers good or service.

      ANS: N

      DIF: 1               REF: p. 176           OBJ: TYPE: KN

13. Having a(n) ______________ improves the changes of success for a new business.

      ANS: K

      DIF: 1               REF: p. 157           OBJ: TYPE: KN
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 14. A(n) _______________ is one that does business in its state of incorporation.

      ANS: M

      DIF: 1                REF: p. 183            OBJ: TYPE: KN

 15. The ___________ is the document that formally establishes a corporation.

      ANS: O

      DIF: 1                REF: p. 184            OBJ: TYPE: KN


ESSAY

  1. Define small business and identify the industries in which small firms are established.

      ANS:
      Small business in the United States is defined by the Small Business Administration based on annual
      sales and the number of employees. Manufacturing firms having less than 500 employees classified as
      small, while wholesalers cannot have more than 100 employees to be considered small. Retailers can
      have up to $5 million in annual sales and be considered small businesses while an agricultural business
      cannot have more than $500,000 in annual sales to be classified as a small business. Small businesses are
      not market dominant and about 50% of them are operated out of the home. Most small businesses are
      involved in retailing and service industries.

      DIF: 3                REF: p. 157-158        OBJ: TYPE: AP

  2. Why are small businesses especially important to women and minorities?

      ANS:
      Small businesses are the launching pad for entrepreneurs from every sector of the diverse U.S.
      population. They are especially important for women and members of minority groups because small
      businesses provide greater opportunities. About 33 percent of small businesses are owned by women,
      and about 10 percent are owned by minorities.

      DIF: 2                REF: p. 173-174        OBJ: TYPE: AP

  3. Identify the major economic and social contributions of small business?

      ANS:
      Small business in the United States provides more jobs than corporate America. Most new jobs and first
      level jobs are provided by small businesses. About 50% of small businesses are run out of the home.
      Today, more than 14 million Americans are self-employed.

      DIF: 3                REF: p. 161-163        OBJ: TYPE: AP
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 4. How have corporate downsizing and outsourcing created new opportunities for small businesses?

      ANS:
      The movement toward corporate downsizing that began in the early 1990s created a demand for other
      businesses to perform activities previously handled by company employees. Outsourcing activities such
      as security, employee benefits, maintenance, and logistics created opportunities that have often been
      filled by employees of small businesses.

      DIF: 3                 REF: p. 158-159        OBJ: TYPE: AP

 5. Identify each of the major advantages and disadvantages of small business.

      ANS:
      Small businesses are able to develop financial and personal initiatives for the owner far beyond more
      protected employment. When the market is right and the product well received, the individual is
      rewarded beyond belief. But, when financing turns sour, competition gets rough, and government
      regulations delay production, an individual is likely to get crushed. It continues to be an American belief
      that success is there for the asking.

      DIF: 3                 REF: p. 163-168        OBJ: TYPE: AP

 6. List the elements contained in a business plan.

      ANS:
      A typical business plan contains the following elements: (1) an executive summary answering the who,
      what, why, where, when, and how questions for the business in brief; (2) an introduction stating the
      concept, purpose, and objectives of the proposed business,along with an overview of the industry; (3) a
      detailed marketing plan describing the firm's target market, its anticipated competition, and pricing; (4) a
      financial section outlining sources of capital, cash flow projections, and the breakeven point; and (5)
      resumes of the principals.

      DIF: 2                 REF: p. 168-169        OBJ: TYPE: KN

 7. How can a businessperson best use the services of the Small Business Administration (SBA)?

      ANS:
      The Small Business Administration (SBA) works as a clearinghouse for individuals wishing to start a
      small business or to expand an existing small business. The businessperson must develop an acceptable
      business plan and have 30 percent collateral to qualify for a guarantor loan. Loans of up to $25,000 are
      possible directly from the Small Business Administration (SBA).
      DIF: 3                 REF: p. 171           OBJ: TYPE: AP

 8. What is a business incubator?

      ANS:
      In recent years, local community agencies interesting in encouraging business development have
      implemented a concept called a business incubator to provide low-cost shared business facilities to small
      startup ventures. Ventures share clerical staff, computers, telecommunications, and other business
      services.
      DIF: 2                  REF: p. 172           OBJ: TYPE: KN
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 9. Identify several of the major obstacles faced by minority entrepreneurs.

     ANS:
     Minority entrepreneurs have made great strides in recent years but still face a number of obstacles.
     Minority entrepreneurs tend to start their businesses on a smaller scale and have more difficulty finding
     investors than other entrepreneurs. They depend less on bank credit as a source of financing. Some argue
     that banks are not as likely to lend money to minority entrepreneurs as they are to other entrepreneurs.
     Another problem is the fact that minority business networks aren't as well developed. Business networks
     are often important sources of customers and financing.

     DIF: 2                REF: p. 176-177        OBJ: TYPE: KN

10. Identify and briefly explain each of the advantages in buying a franchise.

     ANS:
     The franchisee gets a known brand name. Good franchisers provide advertising help, site selection
     programs, building plans, accounting systems, management training and name recognition. Good
     franchisers spend time and money over the fee to help the business get started.

     DIF: 1                REF: p. 176-177        OBJ: TYPE: AP

11. What are the three forms of business ownership? How are they different from one another?

     ANS:
     The three forms of business ownership are sole proprietorships, partnerships and corporations. Sole
     proprietorships make up 90% of all small businesses. A sole proprietorship offers the advantage of being
     able to make changes and decisions quickly. The major disadvantage is that the sole proprietor is totally
     responsible for all debts. The partnership spreads out the responsibilities, and allows the business to
     grow. However, each partner is totally financially responsible for his/her actions, and for those of each
     other partner. The corporation limits liability to specified amounts, but requires extensive bookwork to
     operate properly.

     DIF: 3                REF: p. 180            OBJ: TYPE: AP

12. List the steps in the incorporation process. Many large, prominent corporations are incorporated in what
    state? Why?

     ANS:
     Creating a corporation involves the following steps: (1) deciding where to incorporate; (2) drawing up a
     corporate charter; and (3) preparing a set of bylaws. All states have laws regarding what elements the
     corporate charter and bylaws must contain. Many large corporations are incorporated in Delaware due to
     a favorable legal climate and the speed and simplicity of the incorporation process.

     DIF: 2                REF: p. 183-185        OBJ: TYPE: AP
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 13. Define the role of corporate management.

      ANS:
      The stockholders of a corporation elect the officers. The officers are responsible for developing
      corporate policy and for supervising the activities of the chief executive officer. Individual managers are
      given specific goals that are included in a set of short-range and long-range operating plans. Profits,
      internal cost control, and management development are three areas that are measured by the
      stockholders in evaluating corporate effectiveness.

      DIF: 3                 REF: p. 185            OBJ: TYPE: AP

 14. Distinguish between a vertical merger, a horizontal merger, and a conglomerate merger. Give an
     example of each. Which is likely to receive the closest government scrutiny?

      ANS:
      A vertical merger is when a company acquires a supplier. An example would be a utility acquiring a coal
      company. A horizontal merger is when a company acquires a competitor. Bank mergers are examples of
      horizontal mergers. A conglomerate is when a company acquires another company that is an unrelated
      business. An example would be a food company acquiring a chain of home improvement stores.
      Because horizontal mergers often result in reduced competition in industries, they receive the closest
      government scrutiny.
      DIF: 3                REF: p. 187-188        OBJ: TYPE: AP

 15. Discuss two alternatives to private ownership and give an example of each.

      ANS:
      Public ownership and cooperatives are alternatives to private ownership. Public ownership refers to
      organizations owned by municipal, state, or federal governments. Examples include a local government
      owning a parking structure and the federal government owning and operating Amtrak. Cooperatives are
      organizations whose owners collectively operate all or part of their industries. Cooperatives may be
      organized by producers, such as Sunkist Growers, or by consumers, such as Recreational Equipment,
      Inc.
      DIF: 3               REF: p. 188             OBJ: TYPE: AP


MULTIPLE CHOICE

  1. _____ percent of all U.S. firms employ 100 or fewer workers.
     a. Less than 50
     b. About 50
     c. About 75
     d. More than 75
     ANS: D                DIF: 1               REF: p. 157                OBJ: TYPE: KN

  2. Small businesses account for _____ percent of all sales in the United States.
     a. 25
     b. 33
     c. 50
     d. 67
      ANS: B                 DIF: 1                 REF: p. 157            OBJ: TYPE: KN
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3. _____ of all U.S. small businesses are owned by women.
   a. About 25 percent
   b. About 33 percent
   c. About 50 percent
   d. More than 50 percent
   ANS: B                 DIF: 1                REF: p. 174           OBJ: TYPE: KN

4. Women and minorities are starting a large part of the small businesses today because _____.
   a. improved economic conditions have improved entrepreneurial opportunities for both men
      and women in every ethnic group
   b. the Small Business Administration (SBA) has expanded small-business loans
   c. several scientific studies have proven that women are more successful than men in business
   d. funds are both more expensive and difficult to obtain
   ANS: A                 DIF: 1                REF: p. 174           OBJ: TYPE: KN

5. Retailers who generate up to ______ in sales are considered to be small businesses.
   a. $500,000
   b. $1 million
   c. $5 million
   d. $10 million
   ANS: C                 DIF: 1                REF: p. 158           OBJ: TYPE: KN

6. Traditionally, small businesses tended to be concentrated in the _____ industry.
   a. retailing
   b. wholesaling
   c. manufacturing
   d. importing/exporting
   ANS: A                 DIF: 1                REF: p. 158           OBJ: TYPE: KN

7. The most likely kind of business for individual small-business owners to get into is _____.
   a. fast food
   b. manufacturing
   c. wholesale
   d. retail
   ANS: D                 DIF: 1                REF: p. 158           OBJ: TYPE: AP

8. Which of the following industries has the highest percentage of firms with fewer than 500 employees?
   a. Retail trade
   b. Services
   c. Wholesale trade
   d. Construction
   ANS: A                 DIF: 1                REF: p. 159           OBJ: TYPE: KN



9. Although the average farm size has gotten _____, the majority of farmers operate as _____ businesses.
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      a.   smaller; small
      b.   larger; small
      c.   smaller; large
      d.   larger; large
      ANS: B                DIF: 1              REF: p. 159           OBJ: TYPE: KN

10. _____ of small businesses operate out of the owner's residence today.
    a. Less than 25 percent
    b. About 25 percent
    c. About 50 percent
    d. About 75 percent
      ANS: C                DIF: 1              REF: p. 159           OBJ: TYPE: KN

11. The _______ workers tend to be employed by small businesses.
    a. youngest
    b. youngest and oldest
    c. oldest
    d. youngest and most experienced
    ANS: B              DIF: 1               REF: p. 159              OBJ: TYPE: KN

12. Which of the following types of businesses is least likely to have fewer than 20 employees?
    a. Dentists
    b. Doctors
    c. Hospitals
    d. Law firms
    ANS: C               DIF: 1                 REF: p. 158             OBJ: TYPE: KN

13. _____ of all U.S. workers are employed by small businesses today.
    a. About 25 percent
    b. About 33 percent
    c. About 50 percent
    d. About 75 percent
    ANS: C               DIF: 1                REF: p. 158          OBJ: TYPE: KN

14. Which of the following types of businesses is most likely to have fewer than 20 employees?
    a. Dentists
    b. Doctors
    c. Hospitals
    d. Law firms
    ANS: A               DIF: 1                 REF: p. 158            OBJ: TYPE: KN

15. Small businesses create approximately _____ percent of new jobs in the United States today.
    a. 25
    b. 50
    c. 75
    d. 100
    ANS: C                DIF: 1              REF: p. 161           OBJ: TYPE: KN

16. City revitalization programs are _____.
                                                                                                           5-9



     a.   clearing blighted areas for small business
     b.   harming small-business opportunities in disadvantaged areas
     c.   proposing mergers
     d.   downsizing
     ANS: A                 DIF: 1                REF: p. 163            OBJ: TYPE: AP

17. In general, large firms have _____ in recent years.
    a. created a glut of money on the local market
    b. increased the roles they play in local government
    c. reduced employment opportunities
    d. trained potential employees only when lucrative government grants were available to cover
        all costs involved
     ANS: C                 DIF: 1                REF: p. 161            OBJ: TYPE: KN

18. Alani wants to start her own video rental business. Alani personally wants to make all decisions
    regarding the business and to share the profits with no one. She is willing to risk her personal assets as
    well as her investment in the business. She represents _________.
    a. an overly-rigid entrepreneur
    b. the growing number of women starting businesses
    c. growth of video concepts
    d. a growing dissatisfaction with male leadership
     ANS: B                 DIF: 2                REF: p. 174            OBJ: TYPE: KN

19. _______ by large firms has created new opportunities for small businesses.
    a. Mergers
    b. Expansion of market coverage
    c. Outsourcing
    d. Difficulty in securing financing
     ANS: C                 DIF: 3                REF: p. 161            OBJ: TYPE: AP

20. Consuela is planning to open a consulting business in handling dangerous hospital wastes. She has
    contacted several hospitals and HMOs. They plan to give her a considerable portion of their business
    because she can solve their disposal problem through _____.
    a. capital
    b. outsourcing
    c. new employees
    d. training
     ANS: B                 DIF: 2                REF: p. 161            OBJ: TYPE: AP

21. Most people in the United States will _______.
    a. have a job
    b. have a career
    c. work for at least one small business
    d. want to go into business
     ANS: C                 DIF: 2                REF: p. 161            OBJ: TYPE: AP

22. All of the following are advantages of a small business EXCEPT _____.
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       a.   innovation
       b.   less government regulation and lower taxes
       c.   superior customer service
       d.   lower costs
       ANS: B                DIF: 1                REF: p. 163         OBJ: TYPE: KN

23. Small businesses are given credit for being innovative because _____.
    a. they have the funds to turn new ideas into large-scale, profitable ventures
    b. they employ highly intelligent, highly motivated people
    c. they provide fertile ground for new ideas
    d. they work harder
       ANS: C                DIF: 2                REF: p. 163         OBJ: TYPE: AP

24. Measured _____ small businesses are awarded more patents as compared to larger businesses.
    a. per employee
    b. per dollar in assets
    c. per dollar in sales
    d. in terms of number
       ANS: C                DIF: 1                REF: p. 163         OBJ: TYPE: KN

25. Superior customer service can be an advantage when the small business can ____.
    a. compete with the big business
    b. tailor its service
    c. buy better materials
    d. attack an individual problem
       ANS: B                DIF: 2                REF: p. 164         OBJ: TYPE: KN

26. Small businesses can offer lower prices by having _____.
    a. joint ventures
    b. lower overhead
    c. better buying
    d. price discounts from volume purchases
    ANS: B                DIF: 2                REF: p. 164            OBJ: TYPE: KN

27. When a small business needs legal help, which of the following is an advantage over big business?
    a. Attorneys can be hired for special projects.
    b. Attorneys enjoy the challenges present in representing small-business clients.
    c. A surplus of attorneys currently exists in the United States.
    d. Small businesses have less need for legal help.
    ANS: A               DIF: 2                  REF: p. 164          OBJ: TYPE: KN

28. The quality of the work provided by the small business owner is important because _____.
    a. it leads the way for future investors
    b. the firm's employees need an example
    c. costs are kept in line
    d. small-business owners do not have to pay themselves overtime rates
    ANS: C                 DIF: 2              REF: p. 164            OBJ: TYPE: KN
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29. Locating a business in the home creates _____.
    a. family tension
    b. lower overhead
    c. more work
    d. more overtime
    ANS: B                DIF: 2               REF: p. 159          OBJ: TYPE: AP

30. A marketing niche is important for a small business because _____.
    a. it is comfortable
    b. it is the right thing to do
    c. it offers profit potential with less competition
    d. it organizes overhead
    ANS: C                  DIF: 2               REF: p. 164         OBJ: TYPE: KN

31. _____ newly-launched businesses fail within two years after commencing operations.
    a. Less than one in ten
    b. About one of every four
    c. About half of all
    d. More than half of all
    ANS: B               DIF: 1                REF: p. 165          OBJ: TYPE: KN

32. What percentage of new businesses fail within the first ten years?
    a. Less than 50 percent.
    b. 50 percent.
    c. 75 percent.
    d. More than 75 percent.
    ANS: D               DIF: 2                REF: p. 165             OBJ: TYPE: KN

33. If you are considering starting your own business, what should you do first?
    a. Learn the basics of business.
    b. Recognize your limitations.
    c. Write up a business plan.
    d. Apply for a Small Business Administration (SBA) loan.
    ANS: A                DIF: 1                REF: p. 166           OBJ: TYPE: AP

34. Which of the following is the leading cause of today's small business failures?
    a. Management shortcomings
    b. Poor products and/or services
    c. No marketing plan
    d. Excess government regulation
    ANS: A               DIF: 3                 REF: p. 166            OBJ: TYPE: AP

35. A small business fails in the management sense when _____.
    a. financial training is lacking
    b. marketing training is lacking
    c. staffs are overworked
    d. overall business training is lacking
    ANS: D                 DIF: 3              REF: p. 166          OBJ: TYPE: KN

36. Many businesses fail during the early years because of _____.
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       a.   unmotivated owners
       b.   poor planning
       c.   niche markets
       d.   lack of capital
       ANS: D               DIF: 2               REF: p. 167           OBJ: TYPE: AP

37. According to surveys, a majority of small businesses rely on _____ as a source of financing.
    a. trade credit
    b. personal credit cards
    c. business credit cards
    d. bank loans
       ANS: A               DIF: 2               REF: p. 167           OBJ: TYPE: KN

38. A business plan for a small business typically contains all of the following EXCEPT _____.
    a. a statement of the company's goals
    b. a detailed time frame for achieving goals
    c. projections of money flows
    d. a time frame for selling stock to investors
       ANS: D               DIF: 2               REF: p. 169           OBJ: TYPE: AP

39. Apple Computer, FedEx, Sun Microsystems, and many other well-known companies used _____ when
    they were startups.
    a. direct Small Business Administration (SBA) loans
    b. Small Business Investment Company (SBIC) financing
    c. ACE-Net financing
    d. MicroLoan financing
       ANS: B               DIF: 1               REF: p. 171           OBJ: TYPE: KN

40. Martha is the owner of a very small technology startup. She wants to expand her business and is willing
    to exchange partial ownership for financing and advice. She should _____.
    a. apply for a direct Small Business Administration (SBA) loan
    b. use the services of ACE-Net
    c. seek venture capital financing
    d. apply for Small Business Investment Company (SBIC) financing
       ANS: B               DIF: 2               REF: p. 171           OBJ: TYPE: AP

41. Jabari and Mosi inherited a successful business from their father. They have run the business for five
    years and need to expand. They should _____.
    a. sell the business
    b. have a planning retreat
    c. get a Small Business Administration (SBA) consultant
    d. form a limited partnership
       ANS: C               DIF: 2               REF: p. 171           OBJ: TYPE: AP

42. Arnold and Roger own a party store. The bank recently foreclosed on the mortgage on the building, and
    it appears that the business will be dissolved. Both Arnold and Roger are personally liable for all
    business debts. They should _____.
                                                                                                        5-13



     a.   sell the assets of the business before they are claimed by creditors
     b.   obtain a MicroLoan
     c.   go on a partnership planning retreat
     d.   apply for a Small Business Investment Company (SBIC) loan
     ANS: D                 DIF: 2                 REF: p. 171            OBJ: TYPE: AP

43. Hasam has a small business. He needs help on a variety of issues. The Small Business Administration
    (SBA) can help him by providing _____.
    a. an on-site counselor
    b. toll-free telephone advice
    c. an accountant
    d. an advertising specialist
     ANS: A                 DIF: 2                 REF: p. 171            OBJ: TYPE: KN

44. When the Small Business Administration (SBA) assists a small business in applying for a major loan, it
    acts as the _____.
    a. lender's bank
    b. lender's savings and loan association
    c. lender's credit union
    d. lender's guarantor
     ANS: D                 DIF: 2                 REF: p. 171            OBJ: TYPE: KN

45. The Small Business Administration (SBA) provides all of the following EXCEPT _____.
    a. loan guarantees
    b. advice from retired executives
    c. ACE-Net services
    d. business incubators
     ANS: D                 DIF: 2                 REF: p. 171            OBJ: TYPE: KN

46. All of the following organizations are regularly and directly involved in sponsoring business incubators
    EXCEPT _____.
    a. the federal government
    b. colleges and universities
    c. not-for-profit organizations
    d. profit-seeking businesses
     ANS: A                 DIF: 1                 REF: p. 171            OBJ: TYPE: KN

47. Large firms help small firms for all of the following reasons EXCEPT _____.
    a. large firms recognize the size of the small business markets
    b. large firms want to take advantage of small business innovations
    c. large firms want to take control of small businesses in order to eliminate competition
    d. large firms may be on the lookout for good acquisition candidates
     ANS: C                 DIF: 2                 REF: p. 172-173        OBJ: TYPE: AP

48. The growth rate for women-owned firms is lowest in which of the following industries?
    a. Manufacturing
    b. Agribusiness
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       c. Construction
       d. High technology
       ANS: D             DIF: 2                 REF: p. 174         OBJ: TYPE: KN

49. In recent years, the growth in the number of businesses owned by _____ outpaced the growth in the
    overall number of U.S. businesses.
    a. African Americans
    b. Hispanics
    c. Asian Americans
    d. African Americans, Hispanics, and Asian Americans
    ANS: D                 DIF: 1                REF: p. 174         OBJ: TYPE: KN

50. _______________ are the largest group of minority business owners in the United States.
    a. African American
    b. Hispanic
    c. Native American
    d. Asian American
    ANS: B              DIF: 1                REF: p. 174          OBJ: TYPE: KN

51. Which of the following is an obstacle faced by minority entrepreneurs?
    a. Few Small Business Administration (SBA) programs are designed to help minority
       entrepreneurs.
    b. They have no access to business incubators.
    c. They are less able to rely on bank credit for financing.
    d. Poor management
    ANS: C               DIF: 2                  REF: p. 176          OBJ: TYPE: AP

52. Franchising begin _____.
    a. during the early 1800s
    b. immediately following the U.S. Civil War
    c. during the 1920s
    d. immediately following World War II
    ANS: B               DIF: 1              REF: p. 176             OBJ: TYPE: KN

53. Which of the following is the largest franchise in the United States?
    a. Taco Bell
    b. McDonald's
    c. Subway
    d. Curves for Women
    ANS: C               DIF: 1                  REF: p. 176            OBJ: TYPE: KN

54. In total, U.S. franchises generate over _____ in annual sales.
    a. $100 billion
    b. $500 billion
    c. $750 billion
    d. $1 trillion
    ANS: D                  DIF: 1               REF: p. 176         OBJ: TYPE: KN

55. The two principals in a franchising agreement are _____.
    a. manager and worker
                                                                                           5-15



     b. franchiser and worker
     c. franchiser and franchisee
     d. big money investor and start-up visionary
     ANS: C               DIF: 1                REF: p. 177          OBJ: TYPE: KN

56. The franchiser provides all of the following services EXCEPT _____.
    a. building plan
    b. site selection
    c. assistant manager.
    d. name recognition.
    ANS: C                DIF: 1                 REF: p. 177        OBJ: TYPE: KN

57. Juan buys a McDonald's franchise. Juan is the _____ and _____ for McDonald's.
    a. franchisor; works
    b. franchisor; does not work
    c. franchisee; works
    d. franchisee; does not work
    ANS: D               DIF: 2                 REF: p. 177         OBJ: TYPE: AP

58. The advertising plan for a franchise is usually put together by the _____.
    a. franchisee
    b. advertising agency
    c. franchiser
    d. co-owners
    ANS: C                DIF: 1                  REF: p. 177            OBJ: TYPE: KN

59. A franchisee purchases which of the following from the franchiser?
    a. Only food
    b. Both tangible and intangible assets
    c. Only equipment
    d. Only name recognition
    ANS: B               DIF: 1                REF: p. 177           OBJ: TYPE: KN

60. Franchising offers all of the following advantages EXCEPT _____.
    a. prior performance record
    b. a recognizable company name
    c. guaranteed level of profitability
    d. training
    ANS: C                 DIF: 1                REF: p. 177       OBJ: TYPE: AP

61. When other franchisees fail in the same geographic region, a franchisee might _____.
    a. feel more pressure to avoid the problems faced by the other franchisee
    b. cut prices in an effort to attract more customers
    c. go two for one to entice customers to make trial purchases
    d. start advertising to reach customers outside the immediate area
    ANS: A                 DIF: 1                 REF: p. 178         OBJ: TYPE: KN

62. _____ of U.S. exporters have fewer than 500 employees.
    a. Less than 25 percent
    b. About 50 percent
5-16



       c. About 75 percent
       d. Over 90 percent
       ANS: D              DIF: 2                REF: p. 179           OBJ: TYPE: KN

63. Which nation is considered to be the most entrepreneurial?
    a. Mexico
    b. The United States
    c. Korea
    d. New Zealand
    ANS:A                DIF: 1                 REF: p. 179            OBJ: TYPE: KN

64. _______________ owned businesses are most likely to be engaged in international trade.
    a. African American
    b. Asian American
    c. Hispanic
    d. Native American
    ANS: C              DIF: 2             REF: p. 179            OBJ: TYPE: KN

65. In most cases, the best way to organize a business for a onetime event is to _____.
    a. call the Small Business Administration (SBA)
    b. pay a consultant
    c. set up a sole proprietorship
    d. look for national guidelines
    ANS: C                 DIF: 1                REF: p. 180           OBJ: TYPE: KN

66. If you are a highly independent individual used to having your own way, the best business format for you
    is _____.
    a. a partnership
    b. a corporation
    c. a sole proprietorship
    d. to be president
    ANS: C                  DIF: 1               REF: p. 180           OBJ: TYPE: AP

67. Sole proprietorships have all of the following advantages EXCEPT _____.
    a. ease of formation
    b. unlimited life
    c. easy to dissolve
    d. profits subject only to a single tax
    ANS: B                DIF: 1                 REF: p. 180        OBJ: TYPE: KN

68. As a sole proprietor, when you need more money to grow or pay bills, your most likely source of funds is
    to _____.
    a. take it out of petty cash
    b. raise it by pledging your assets to a lender
    c. borrow the funds from a friend
    d. go to the Small Business Administration (SBA) for a loan.
    ANS: B                 DIF: 2                REF: p. 181         OBJ: TYPE: KN

69. On a day-to-day basis, the greatest working advantage of a partnership is _____.
    a. someone else to answer the phone
                                                                                                      5-17



     b. two people make a better impression
     c. a deeper skills pool
     d. most clients like more than one person to talk with
     ANS: C                 DIF: 1                  REF: p. 180               OBJ: TYPE: AP

70. The stock of Old Germany Brewery is totally owned by the Prechter family. When the sons elected to
    move from a sole proprietorship to a partnership, the greatest concern was _____.
    a. there might be family squabbles
    b. how to limit liability
    c. who would do what work
    d. who is in charge
     ANS: B                 DIF: 2                  REF: p. 181               OBJ: TYPE: AP

71. If Jiro, Kiyoshi, and Ted go to the bank to borrow money to expand their business, the bank is most
    likely to _____.
    a. issue a loan right away
    b. call in the Small Business Administration (SBA)
    c. require a mortgage on the assets of each as a loan requirement
    d. refuse to make the loan if one of the partners has more money than the others
     ANS: C                 DIF: 3                  REF: p. 181               OBJ: TYPE: AP

72. Assume that Jiro takes the money out of the bank and flees to Honduras. His partners, Kiyoshi and Ted,
    will tell the creditors at the first of the month _____.
    a. "Jiro has the money"
    b. "It's not our fault"
    c. "Jiro did it"
    d. "It's not our fault, but we know we have to repay the loan"
     ANS: D                 DIF: 2                  REF: p. 181               OBJ: TYPE: AP

73. If a partnership wishes to limit liability, it has the option to _____.
    a. pledge funds
    b. promise not to do anything wrong
    c. set up a limited partnership
    d. withhold funds
     ANS: C                 DIF: 2                  REF: p. 181               OBJ: TYPE: KN

74. The maximum number of shareholders is limited to ______ for the firm to qualify as a subchapter S
    corporation.
    a. 25
    b. 50
    c. 75
    d. 100
     ANS: C                 DIF: 2                  REF: p. 182               OBJ: TYPE: KN

75. Corporations have all of the following advantages EXCEPT _____.
    a. favorable tax treatment
    b. limited liability
5-18



       c. expanded financial capacity
       d. unlimited life
       ANS: A               DIF: 1                 REF: p. 182            OBJ: TYPE: KN

76. Fernando and Claire own 300 shares of common stock in Trans-Communications, Inc. Should the
    corporation fail, they would lose _____.
    a. all of their earnings
    b. nothing because they have limited liability
    c. all of their assets
    d. a maximum of their investment in the corporation
       ANS: D               DIF: 2                 REF: p. 182            OBJ: TYPE: AP

77. For its favorable legal climate, and the ease and simplicity of its incorporation process, _____ is the most
    popular state of incorporation for many members of the Fortune 500.
    a. Delaware
    b. New York
    c. New Jersey
    d. Florida
       ANS: A               DIF: 1                 REF: p. 183            OBJ: TYPE: KN

78. The board of directors of a corporation is elected by the _____.
    a. corporation's employees
    b. bondholders and other creditors
    c. corporate officers
    d. stockholders
       ANS: D               DIF: 1                 REF: p. 185            OBJ: TYPE: KN

79. All of the following are duties of the board of directors of a corporation EXCEPT _____.
    a. hiring the corporation's chief executive officer
    b. authorizing major transactions of the corporation
    c. guaranteeing the payment of cash dividends every year
    d. electing its own officers
       ANS: C               DIF: 3                 REF: p. 185            OBJ: TYPE: KN

80. Most states require a corporation to select directors from which of the following?
    a. Academicians
    b. Retired politicians
    c. Community activists
    d. High-ranking executives
       ANS: D               DIF: 1                 REF: p. 185            OBJ: TYPE: KN




81. The board of directors usually includes some individuals who are not employed by the corporation.
    These people are referred to as _____.
    a. inside directors
                                                                                                           5-19



     b. outside directors
     c. influential board members
     d. members of top management
     ANS: B                 DIF: 1                REF: p. 185            OBJ: TYPE: KN

82. All of the following are reasons for having outside directors EXCEPT _____.
    a. they are more likely to question, challenge, and stimulate management
    b. they can devote unlimited time to board issues because they are not employed by the
        corporation
    c. they are independent of day-to-day managerial operations
    d. they can bring to the board a wide range of personal qualifications
     ANS: B                 DIF: 3                REF: p. 185            OBJ: TYPE: AP

83. Which level of management sets corporate policy, makes most of the major corporate decisions, and
    manages the overall operations of the company?
    a. Top management
    b. Supervisory management
    c. Staff managers
    d. Front-line management
     ANS: A                 DIF: 1                REF: p. 185            OBJ: TYPE: KN

84. A CEO
    a. must be chair of his or her firm's board.
    b. appoints all board members.
    c. cannot serve on another firm's board.
    d. is classified as an inside director.
    ANS: D                 DIF: 1                REF: p. 185             OBJ: TYPE: AP

85. Lucia has a management position in a large corporation. Lucia's responsibilities include the full financial
    authority to make appropriations and authorize expenditures. She is likely to be a member of _____.
    a. top management
    b. advisory management
    c. middle management
    d. supervisory management
    ANS: A               DIF: 2                 REF: p. 185            OBJ: TYPE: AP

86. Lance is a produce manager for a supermarket. Lance's job involves coordinating day-to-day operations,
    supervising employees, and evaluating employees' job performances. He is considered to be operating at
    the _____ level.
    a. top management
    b. supervisory management
    c. intermediate management
    d. middle management
    ANS: B               DIF: 2                REF: p. 185            OBJ: TYPE: AP

87. The Chivas Corp., a real estate development firm, buys 80 percent of the stock of Dependable Plate
    Glass. This purchase is an example of a _____.
    a. vertical merger
5-20



       b. horizontal merger
       c. backward vertical merger
       d. conglomerate purchase
       ANS: D              DIF: 2                 REF: p. 187           OBJ: TYPE: AP

88. If Donovan Corp. buys the majority of Strong Corp.'s stock and Strong is in the same business, then the
    purchase is called a _____.
    a. vertical merger
    b. horizontal merger
    c. conglomerate merger
    d. joint venture
       ANS: B              DIF: 2                 REF: p. 187           OBJ: TYPE: AP

89. If Smith Steel buys Kennedy Iron Ore Co. to assure itself of a constant flow of ore, this is an example of
    a _____.
    a. domestic company
    b. conglomerate company
    c. subsidiary corporation
    d. vertical merger
       ANS: D              DIF: 2                 REF: p. 187           OBJ: TYPE: AP

90. A Hollywood movie studio buys a video rental company. This is a(n) _____.
    a. conglomerate merger
    b. acquisition
    c. vertical merger
    d. joint venture
       ANS: C              DIF: 2                 REF: p. 187           OBJ: TYPE: AP

91. An acquisition occurs when _____.
    a. one corporation owns 8 percent of the stock of another corporation
    b. one company purchases the property and assumes the obligations of another company
    c. two or more firms combine to form a single company
    d. owners of small companies band together to operate their businesses collectively
       ANS: B              DIF: 2                 REF: p. 187           OBJ: TYPE: KN

92. The merger of Chemical Bank and Chase Manhattan Bank was an example of a _____.
    a. conglomerate merger
    b. horizontal merger
    c. vertical merger
    d. backward vertical merger
       ANS: B              DIF: 2                 REF: p. 187           OBJ: TYPE: AP

93. The Core Corp., a fruit distributor, has recently purchased a warehouse that will reduce the costs of
    leasing warehouse space. The merger that has occurred is a _____.
    a. joint venture
    b. horizontal merger
    c. vertical merger
                                                                                                        5-21



     d. conglomerate merger
     ANS: C               DIF: 2                REF: p. 187           OBJ: TYPE: AP

94. Assume that Microsoft decides to invest some of its excess cash by acquiring fellow Seattle-based
    Starbucks Coffee. This would be a _____.
    a. conglomerate merger
    b. vertical merger
    c. horizontal merger
    d. joint venture
     ANS: A               DIF: 2                REF: p. 187           OBJ: TYPE: AP

95. When Daimler Benz merged with Chrysler, this was an example of a _____.
    a. conglomerate merger
    b. vertical merger
    c. horizontal merger
    d. joint venture
     ANS: C               DIF: 2                REF: p. 187           OBJ: TYPE: AP

96. Which type of merger is likely to receive the closest examination by the Federal Trade Commission?
    a. Conglomerate merger
    b. Vertical merger
    c. Horizontal merger
    d. Joint venture
     ANS: C               DIF: 3                REF: p. 187           OBJ: TYPE: AP

97. A combination between firms in the same industry who are attempting to diversify and offer a complete
    product line is called a _____.
    a. conglomerate merger
    b. vertical merger
    c. joint venture
    d. horizontal merger
     ANS: D               DIF: 1                REF: p. 187           OBJ: TYPE: KN

98. Which of the following terms describes a merger of unrelated firms?
    a. Cooperative
    b. Conglomerate merger
    c. Vertical merger
    d. Horizontal merger
     ANS: B               DIF: 1                REF: p. 187           OBJ: TYPE: KN



99. Pharmaceutical giants Merck and Amgen decide to form another company to develop new drugs. Both
    companies own 50 percent of the new company. This is an example of a(n) _____.
    a. joint venture
    b. subsidiary
    c. horizontal merger
5-22



       d. vertical merger
       ANS: A               DIF: 2              REF: p. 188          OBJ: TYPE: AP

100. Carla works for a company. She and her co-workers own 55% of the company's outstanding stock.
     Carla works for a(n) _____________.
     a. employee owned corporation.
     b. public corporation.
     c. cooperative.
     d. privately held corporation.
       ANS: A               DIF: 1              REF: p. 186          OBJ: TYPE: AP

101. Alternatives to private ownership include _____.
     a. public ownership and collective ownership
     b. employee ownership and foreign corporations
     c. foreign corporations and public ownership
     d. employee ownership and collective ownership
       ANS: A               DIF: 2              REF: p. 188          OBJ: TYPE: KN

102. When a government unit owns and operates an organization, the arrangement is known as _____.
     a. private ownership
     b. a cooperative
     c. public ownership
     d. employee ownership
       ANS: C               DIF: 1              REF: p. 188          OBJ: TYPE: KN

103. _____ are often formed by large numbers of small producers who want to be more competitive in the
     marketplace.
     a. Joint ventures
     b. Mergers
     c. Private corporations
     d. Cooperatives
       ANS: D               DIF: 1              REF: p. 188          OBJ: TYPE: KN

104. Miguel is the owner of a small mushroom farm in Pennsylvania. Miguel would like to join with other
     mushroom growers to create an organization that will promote and distribute mushrooms. The form of
     ownership that would be most suited for the mushroom growers is the _____.
     a. cooperative
     b. government-owned collective
     c. open corporation
     d. joint venture
       ANS: A               DIF: 2              REF: p. 188          OBJ: TYPE: AP

105. A _____ would most likely be publicly owned.
     a. trucking company
     b. cable television company
     c. movie theater
     d. city sewer system
                                                                                                        5-23



      ANS: D                 DIF: 2                 REF: p. 188            OBJ: TYPE: AP

106. A credit union is a(n) ___________.
     a. employee-owned corporation.
     b. privately held corporation.
     c. cooperative.
     d. public corporation.
      ANS: C                 DIF: 1                 REF: p. 189            OBJ: TYPE: AP


TRUE/FALSE

  1. The vast majority of firms have fewer than 100 employees.

      ANS: T                 DIF: 1                 REF: p. 157            OBJ: TYPE: KN

  2. Less than one in four small businesses are owned by a woman.

      ANS: F                 DIF: 1                 REF: p. 174            OBJ: TYPE: KN

  3. Retailers and service firms with annual sales of less than $5 million are considered to be small
     businesses.

      ANS: T                 DIF: 1                 REF: p. 157            OBJ: TYPE: KN

  4. Any firm with fewer than 1,000 employees is considered a small business.

      ANS: F                 DIF: 1                 REF: p. 157            OBJ: TYPE: KN

  5. Traditionally, most nonfarming small businesses have been concentrated in the retailing and service
     industries.

      ANS: T                 DIF: 1                 REF: p. 158            OBJ: TYPE: KN

  6. Dentist offices are very likely to have fewer than 20 employees

      ANS: T                 DIF: 1                 REF: p. 158            OBJ: TYPE: KN

  7. Nine out of every ten U.S. construction firms are considered to be small businesses.

      ANS: T                 DIF: 1                 REF: p. 159            OBJ: TYPE: KN



  8. Today, less than one retailer in four is classified as a small business.

      ANS: F                 DIF: 1                 REF: p. 159            OBJ: TYPE: KN

  9. The size of the average farm in the United States has gotten smaller in recent years.
5-24




       ANS: F               DIF: 2                 REF: p. 159            OBJ: TYPE: AP

10. More than half of all small businesses operate from the owner's residence.

       ANS: T               DIF: 1                 REF: p. 159            OBJ: TYPE: KN

11. Small businesses account for approximately 50 percent of all sales and employ about 50 percent of all
    nonfarm workers in the United States.

       ANS: T               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

12. About one of every new jobs created in the United States each year are created by small businesses.

       ANS: F               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

13. The youngest and oldest members of the workforce are most likely to be employed by small businesses.

       ANS: T               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

14. Since they usually cannot afford the special training facilities available in larger firms, small businesses
    are less likely to employ workers who are having difficulty finding jobs.

       ANS: F               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

15. Outsourcing has provided opportunities for budding entrepreneurs.

       ANS: T               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

16. Many of today's most successful high-technology companies began as small businesses.

       ANS: T               DIF: 1                 REF: p. 161            OBJ: TYPE: KN

17. A small business is simply a small version of a larger corporation.

       ANS: F               DIF: 1                 REF: p. 163            OBJ: TYPE: KN

18. The primary advantages of small businesses are innovation, higher profits, lower costs, and superior
    customer service.

       ANS: F               DIF: 2                 REF: p. 163            OBJ: TYPE: KN



19. Innovation is a major small business advantage.

       ANS: T               DIF: 1                 REF: p. 163            OBJ: TYPE: KN

20. Small companies obtain more patents, per dollar of sales they generate, than do larger companies.
                                                                                                      5-25



     ANS: T                DIF: 1                REF: p. 163            OBJ: TYPE: KN

21. Many small businesses are leaders in providing superior customer service.

     ANS: T                DIF: 1                REF: p. 164            OBJ: TYPE: KN

22. Small businesses can more easily tailor product lines and services to the needs of customers.

     ANS: T                DIF: 1                REF: p. 164            OBJ: TYPE: KN

23. Because they are smaller, small businesses have higher overhead expenses.

     ANS: F                DIF: 1                REF: p. 164            OBJ: TYPE: KN

24. Small businesses are more likely than larger businesses to outsource such functions as accounting and
    legal services.

     ANS: T                DIF: 2                REF: p. 164            OBJ: TYPE: AP

25. Niche marketing is a strength of small business.

     ANS: T                DIF: 1                REF: p. 164            OBJ: TYPE: KN

26. Some types of businesses prefer to work with small organizations.

     ANS: T                DIF: 1                REF: p. 165            OBJ: TYPE: KN

27. More than half of all small businesses fail within one year.

     ANS: F                DIF: 1                REF: p. 165            OBJ: TYPE: KN

28. The main reason for small business failure is lack of adequate financing.

     ANS: F                DIF: 1                REF: p. 165            OBJ: TYPE: KN

29. Entrepreneurs often assume that they will acquire needed business expertise on the job.

     ANS: T                DIF: 1                REF: p. 166            OBJ: TYPE: KN

30. Securing adequate financing is a major problem for most small businesses.

     ANS: T                DIF: 1                REF: p. 166            OBJ: TYPE: KN


31. Small businesses rely more heavily on borrowed money than do larger firms.

     ANS: F                DIF: 1                REF: p. 166            OBJ: TYPE: KN

32. Personal credit cards are an important source of financing for small businesses.
5-26



       ANS: T               DIF: 1                 REF: p. 166            OBJ: TYPE: KN

33. Taxes and government regulations are more significant issues for large businesses than for small
    businesses.

       ANS: F               DIF: 1                 REF: p. 168            OBJ: TYPE: KN

34. The most important task for an entrepreneur is to create a business plan.

       ANS: T               DIF: 1                 REF: p. 168            OBJ: TYPE: KN

35. Details on financing, including cash flow projections, are usually left out of an initial business plan.

       ANS: T               DIF: 1                 REF: p. 169            OBJ: TYPE: KN

36. The Small Business Administration (SBA) is a major lending source for small businesses needing
    additional funds.

       ANS: F               DIF: 1                 REF: p. 171            OBJ: TYPE: KN

37. A Small Business Administration (SBA) MicroLoan could be for $5,000.

       ANS: T               DIF: 1                 REF: p. 171            OBJ: TYPE: KN

38. Small Business Investment Company (SBIC) loans are actually government loans funneled through a
    private organization.

       ANS: F               DIF: 2                 REF: p. 171            OBJ: TYPE: KN

39. Both Apple Computer and Sun Microsystems used Small Business Investment Company (SBIC) loans
    during their early years of operation.

       ANS: T               DIF: 1                 REF: p. 171            OBJ: TYPE: KN

40. Another form of small business assistance is a set-aside program whereby a percentage of government
    purchases must be made from qualifying small businesses.

       ANS: T               DIF: 1                 REF: p. 171            OBJ: TYPE: KN

41. The Service Corps of Retired Executives (SCORE) is another form of assistance offered by the Small
    Business Administration (SBA).

       ANS: T               DIF: 1                 REF: p. 172            OBJ: TYPE: KN

42. Most business incubators are run by for-profit organizations such as venture capital firms.

       ANS: F               DIF: 2                 REF: p. 172            OBJ: TYPE: AP

43. Corporate giants rarely assist small businesses due to their high failure rates and limited promise of
    future purchase.
                                                                                                         5-27




     ANS: F                DIF: 1                 REF: p. 172            OBJ: TYPE: KN

44. Women own a greater percentage of businesses in the United States than they do in most other countries.

     ANS: T                DIF: 2                 REF: p. 174            OBJ: TYPE: KN

45. Hispanics are the nation's largest group of minority business owners.

     ANS: T                DIF: 1                 REF: p. 174            OBJ: TYPE: KN

46. African-American entrepreneurs are more likely to borrow money from banks than are other
    entrepreneurs.

     ANS: F                DIF: 1                 REF: p. 176            OBJ: TYPE: KN

47. One important advantage of franchising is its ability to provide business expertise for relatively
    inexperienced franchisees.

     ANS: T                DIF: 1                 REF: p. 176            OBJ: TYPE: KN

48. Franchising began just after the end of World War II.

     ANS: F                DIF: 1                 REF: p. 176            OBJ: TYPE: KN

49. Franchising reduces the amount of time and effort the franchiser needs to expand.

     ANS: T                DIF: 1                 REF: p. 178            OBJ: TYPE: KN

50. Total U.S. sales from franchising currently exceed $1 trillion annually.

     ANS: T                DIF: 1                 REF: p. 176            OBJ: TYPE: KN

51. Compared with businesses in general, firms owned by African Americans are less likely to be
    franchises.

     ANS: F                DIF: 1                 REF: p. 177            OBJ: TYPE: KN

52. The dealer-small business owner-is known as the franchisor.

     ANS: F                DIF: 1                 REF: p. 177            OBJ: TYPE: KN


53. The small business franchise owner obtains only intangible assets from the supplier.

     ANS: F                DIF: 1                 REF: p. 177            OBJ: TYPE: KN

54. One of the main advantages of buying a franchise is name recognition.

     ANS: T                DIF: 1                 REF: p. 178            OBJ: TYPE: KN
5-28




55. Franchise fees and future payments tend to be a relatively small cost of owning and operating a
    franchise.

       ANS: F               DIF: 2                 REF: p. 178            OBJ: TYPE: KN

56. The vast majority of U.S. exporters have fewer than 500 employees.

       ANS: T               DIF: 1                 REF: p. 179            OBJ: TYPE: KN

57. Asian American owned firms are the most likely of any minority owned business to be involved in
    international trade.

       ANS: F               DIF: 2                 REF: p. 179            OBJ: TYPE: KN

58. Corporations are the most common forms of business organization.

       ANS: F               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

59. Sole proprietorships are easy to form and to dissolve.

       ANS: T               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

60. A sole proprietor faces unlimited liability.

       ANS: T               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

61. Partnerships are most often created by professionals such as doctors and lawyers.

       ANS: T               DIF: 1                 REF: p. 181            OBJ: TYPE: KN

62. In a partnership, each partner is liable for the business-related debts of the other partners.

       ANS: T               DIF: 1                 REF: p. 181            OBJ: TYPE: KN

63. Large businesses MUST be organized as corporations.

       ANS: F               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

64. MOST large businesses are organized as corporations.

       ANS: T               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

65. Corporations are more difficult to form and to dissolve.

       ANS: T               DIF: 1                 REF: p. 180            OBJ: TYPE: KN

66. Owners of corporations may owe some personal income taxes on dividends, which are paid from
    after-tax corporate profits. This is an example of double taxation.
                                                                                                    5-29



     ANS: T                DIF: 1                 REF: p. 182           OBJ: TYPE: AP

67. Most of the major U.S. companies are incorporated in New York.

     ANS: F                DIF: 1                 REF: p. 183           OBJ: TYPE: KN

68. All corporations are publicly owned.

     ANS: F                DIF: 1                 REF: p. 183           OBJ: TYPE: KN

69. When workers buy stock it is called employee ownership.

     ANS: T                DIF: 1                 REF: p. 186           OBJ: TYPE: KN

70. Each state has its own specific procedure businesses must follow to incorporate there.

     ANS: T                DIF: 1                 REF: p. 183           OBJ: TYPE: KN

71. A corporation operating outside its state of incorporation is known as a foreign corporation.

     ANS: T                DIF: 1                 REF: p. 183           OBJ: TYPE: KN

72. Preferred shareholders typically have voting rights.

     ANS: F                DIF: 1                 REF: p. 185           OBJ: TYPE: KN

73. Owners of common stock are the last to receive any dividends.

     ANS: T                DIF: 1                 REF: p. 185           OBJ: TYPE: KN

74. The CEO of a corporation must also serve as the chair of the board of directors.

     ANS: F                DIF: 1                 REF: p. 185           OBJ: TYPE: KN

75. A vertical merger occurs between firms at different levels in the distribution channel.

     ANS: T                DIF: 1                 REF: p. 187           OBJ: TYPE: KN

76. The American Airlines purchase of TWA is an example of a horizontal merger.

     ANS: T                DIF: 2                 REF: p. 187           OBJ: TYPE: AP


77. The AOL Time Warner merger is an example of a conglomerate merger.

     ANS: F                DIF: 2                 REF: p. 187           OBJ: TYPE: AP

78. Horizontal mergers are formed to insure adequate supplies of raw materials.

     ANS: F                DIF: 1                 REF: p. 187           OBJ: TYPE: KN
5-30




79. A conglomerate merger is a merger of unrelated firms.

       ANS: T               DIF: 1                 REF: p. 187           OBJ: TYPE: KN

80. A joint venture is a partnership between companies formed for a specific purpose. The companies share
    the investment, the risk, and the rewards.

       ANS: T               DIF: 1                 REF: p. 188           OBJ: TYPE: KN

81. In the United States, certain activities are considered to be so important to public welfare that they are
    not entrusted to private ownership.

       ANS: T               DIF: 1                 REF: p. 188           OBJ: TYPE: KN

82. A good example of a cooperative is Blue Diamond Almond Growers.

       ANS: T               DIF: 1                 REF: p. 188           OBJ: TYPE: KN

83. Some cooperatives are created so that small producers can be more competitive in the marketplace.

       ANS: T               DIF: 1                 REF: p. 188           OBJ: TYPE: KN

84. To be considered employee-owned, a firm's workers must own all of the outstanding stock.

       ANS: F               DIF: 2                 REF: p. 188           OBJ: TYPE: AP

								
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