mana 3325 chapter 7
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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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. - correct answer ✔✔
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 - correct answer ✔✔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
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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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. - correct answer ✔✔
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 - correct answer ✔✔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
