Question 1

Franchisors are required by law to disclose all their costs in a document called the Franchise Disclosure Document.

Accepted Answer

A) True 
 B)False

Question 2

The document that consummates the sale of a franchise is called the:

Accepted Answer

A)   Franchise Disclosure Document
B)   franchise agreement
C)   license agreement
D)   Uniform Franchise Licensing Code
E)   franchise circularF) B) and E)
G) A) and B)

Question 3

Which of the following companies would not be suitable for franchising?

Accepted Answer

A)   College Nannies & Tutors
B)   Smoothie King
C)   McDonald's
D)   H&R Block
E)   Lowe'sF) B) and C)
G) All of the above

Question 4

What are the primary advantages and disadvantages to establishing a franchise system (from the franchisor's point of view)?

Accepted Answer

There are two primary advantages to fran...

Question 5

In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly net income.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following was not identified in the textbook as one of the disadvantages of franchising a business?

Accepted Answer

A)   loss of control
B)   friction with franchisees
C)   franchisee motivation
D)   differences in required business skills
E)   legal expensesF) C) and E)
G) All of the above

Question 7

International opportunities for franchising are becoming:

Accepted Answer

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 systemsF) A) and B)
G) A) and C)

Question 8

Which of the following is not a disadvantage of buying a franchise?

Accepted Answer

A)   cost of the franchise
B)   duration and nature of the commitment
C)   restrictions on creativity
D)   availability of financing
E)   potential for failureF) A) and D)
G) A) and C)

Question 9

Which of the following statement is not correct regarding the costs associated with purchasing a franchise?

Accepted Answer

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.F) A) and B)
G) A) and C)

Question 10

According to the textbook, a franchisee's weekly or monthly royalty fees are typically around ________ of gross income.

Accepted Answer

A)   1%
B)   3%
C)   5%
D)   7%
E)   9%F) C) and E)
G) A) and B)

Question 11

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:

Accepted Answer

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 industryF) C) and D)
G) All of the above

Question 12

There are two distinctly different types of franchise systems:

Accepted Answer

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 franchiseF) A) and E)
G) A) and D)

Question 13

The statute that regulates franchising at the federal level is:

Accepted Answer

A)   Federal Trade Commission Rule 436
B)   Congressional Statute 399
C)   SEC Statute 23
D)   Congressional Amendment 442
E)   SEC Fairness in Franchising ActF) B) and D)
G) None of the above

Question 14

To avoid making a hasty judgment, a franchisee may not purchase a franchise for ________ from the time the Franchise Disclosure Document is received.

Accepted Answer

A)   one day
B)   three days
C)   10 days
D)   14 days
E)   30 daysF) C) and D)
G) D) and E)

Question 15

According to the textbook, which of the following is not a cost that is typically associated with buying a franchise?

Accepted Answer

A)   intellectual capital fees
B)   capital requirements
C)   continuing royalty payment
D)   advertising fees
E)   initial franchise feeF) D) and E)
G) C) and E)

Question 16

Business format franchises typically allow franchisees substantial flexibility in how they run their individual franchise units.

Accepted Answer

A) True 
 B)False

Question 17

________ 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.

Accepted Answer

A)   Licensing
B)   Joint Venturing
C)   Contracting
D)   Subcontracting
E)   FranchisingF) A) and E)
G) B) and D)

Question 18

According to our textbook, which of the following is not a quality to look for in prospective franchisees?

Accepted Answer

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 historyF) B) and E)
G) A) and D)

Question 19

An area franchise agreement allows a franchisee to own and operate a specific number of outlets in a particular geographic area.

Accepted Answer

A) True 
 B)False

Question 20

According to the textbook, in 2005 nearly ________ individual franchise outlets were operating in the United States.

Accepted Answer

A)   590,000
B)   765,000
C)   910,000
D)   1.2 million
E)   2.0 millionF) A) and D)
G) B) and D)

Exam 15: Franchising

There are two distinctly different types of franchise systems:

Correct AnswerverifiedShow Answer

Which of the following companies would not be suitable for franchising?

Correct AnswerverifiedShow Answer

In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly net income.

Correct AnswerverifiedShow Answer

What are the primary advantages and disadvantages to establishing a franchise system (from the franchisor's point of view)?

Correct AnswerverifiedThere are two primary advantages to fran...View AnswerShow Answer

Which of the following is not a disadvantage of buying a franchise?

Correct AnswerverifiedShow Answer

According to our textbook, which of the following is not a quality to look for in prospective franchisees?

Correct AnswerverifiedShow Answer

Which of the following was not identified in the textbook as one of the disadvantages of franchising a business?

Correct AnswerverifiedShow Answer

The statute that regulates franchising at the federal level is:

Correct AnswerverifiedShow Answer

Franchisors are required by law to disclose all their costs in a document called the Franchise Disclosure Document.

Correct AnswerverifiedShow Answer

According to the textbook, in 2005 nearly ________ individual franchise outlets were operating in the United States.

Correct AnswerverifiedShow Answer

To avoid making a hasty judgment, a franchisee may not purchase a franchise for ________ from the time the Franchise Disclosure Document is received.

Correct AnswerverifiedShow Answer

According to the textbook, which of the following is not a cost that is typically associated with buying a franchise?

Correct AnswerverifiedShow Answer

According to the textbook, a franchisee's weekly or monthly royalty fees are typically around ________ of gross income.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

International opportunities for franchising are becoming:

Correct AnswerverifiedShow Answer

Which of the following statement is not correct regarding the costs associated with purchasing a franchise?

Correct AnswerverifiedShow Answer

Business format franchises typically allow franchisees substantial flexibility in how they run their individual franchise units.

Correct AnswerverifiedShow Answer

An area franchise agreement allows a franchisee to own and operate a specific number of outlets in a particular geographic area.

Correct AnswerverifiedShow Answer

________ 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.

Correct AnswerverifiedShow Answer

The document that consummates the sale of a franchise is called the:

Correct AnswerverifiedShow Answer

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There are two primary advantages to fran...
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