Building Your Dream 10th Canadian Edition By Walter Good – Test Bank

Stage 11

Buying a Franchise

Multiple Choice Questions

1. Virtually all franchise arrangements contain all of the following elements, except:
   A.A continuing relationship between two parties
   B. A legal contract that describes the responsibilities and obligations of each party
   C. A succession plan
   D. Tangible and intangible assets (such as services, trademarks, and expertise) provided by the franchisor for a fee

The succession plan is not a standard component in a franchise agreement.

Difficulty: Medium
Learning Objective: 11-01 Explain what franchising is.
Topic: 11-01 Considering a Franchise

2. All of the following are examples of a product distribution arrangement, except:
   A. Coke
   B. Pepsi
   C. BMW
   D. McDonalds

Restaurants, personal and business services, rental services, real estate services, and many other businesses fall into the entire business format franchising arrangement.

Difficulty: Easy
Learning Objective: 11-01 Explain what franchising is.
Topic: 11-01 Considering a Franchise

3. Which of the following is an example of an entire business format franchising arrangement?
   A.Tim Hortons
   B. General Motors
   C. Ford Motor Company
   D. Coke

Restaurants, personal and business services, rental services, real estate services, and many other businesses fall into the entire business format franchising arrangement.

Difficulty: Medium
Learning Objective: 11-01 Explain what franchising is.
Topic: 11-01 Considering a Franchise

4. Which of the following is not an advantage to buying a franchise?
   A.A proven system
   B. Reduced risk
   C. Loss of independence
   D. Purchasing power

See Table 11.1: The Pros and Cons of Owning a Franchise.

Difficulty: Medium
Learning Objective: 11-02 Recognize what the advantages and disadvantages of franchising are.
Topic: 11-04 Advantages of Franchising

5. All of the following are considered disadvantages of buying a franchise, except:
   A.Loss of independence
   B. Misrepresentation by the franchisor
   C. Misunderstanding the franchise agreement
   D. Easier access to financing and reduced cash requirements

See Table 11.1: The Pros and Cons Of Owning A Franchise.

Difficulty: Medium
Learning Objective: 11-02 Recognize what the advantages and disadvantages of franchising are.
Topic: 11-04 Advantages of Franchising

6. Which type of franchise is the most popular and simplest format?
   A.Single-unit franchise
   B. Area franchise
   C. Master franchise
   D. Corporate franchise

The single-unit is the most popular format for franchises in Canada and also is the easiest to set up, manage and operate.

Difficulty: Easy
Learning Objective: 11-03 Describe the types of franchises available.
Topic: 11-06 Types of Franchises

7. Which format involves a franchisor’s granting you the right to establish more than one outlet within a specified territory?
   A.Single-unit franchise
   B. Area franchise
   C. Master franchise
   D. Corporate franchise

More than one franchise unit is called an area franchise.

Difficulty: Medium
Learning Objective: 11-03 Describe the types of franchises available.
Topic: 11-06 Types of Franchises

8. In which format does a franchisor grant you the right not only to operate an outlet in a specific territory but also to sell sub-franchises to others within that same territory?
   A.Single-unit franchise
   B. Area franchise
   C. Master franchise
   D. Corporate franchise

In a master franchise, you have the right to operate several units, and also to sell sub-franchises.

Difficulty: Medium
Learning Objective: 11-03 Describe the types of franchises available.
Topic: 11-06 Types of Franchises

9. Which type of franchising is the fastest way for a franchisor to expand?
   A.Single-unit franchise
   B. Area franchise
   C. Master franchise
   D. Corporate franchise

The master franchise permits several units, in multiple areas, as well as the ability to sell sub-franchises.

Difficulty: Medium
Learning Objective: 11-03 Describe the types of franchises available.
Topic: 11-06 Types of Franchises

10. Which type of franchising may be a means of achieving certain economies of scale and perhaps a lower average franchise cost?
    A.Single-unit franchise
    B. Area franchise
    C. Master franchise
    D. Corporate franchise