UGRD-BAMM6002 Franchising

FINAL EXAMINATION

49/50

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A franchise need not have immediate economic benefits for it to be valuable

Select one:

True
The ______________________ represents the economic benefits derived from the
ownership of the franchise.

c.
net cash flow
Overall a new Franchise is low risk of doing the business with an ease to obtain
finance.

Select one:

True
Cost of Goods Sold
  is the amount paid to the franchisor to purchase goods for
sale. Freight charges and other taxes are added while trade discount obtained on
purchase is deducted in order to arrive at this figure
Cost of Goods Sold

also known as owners equity and indicates the value of a business after providing for
all the financial obligations.
Net Worth

Major liability of a franchisee is the long term loan obtained from bank or financial
institution or sometimes from the franchisor.

Select one:

True
It is always advisable to solicit expert advice of competent legal advisors for different
types of legal compliance.
Select one:

True
_______________________ this represents the component of return from an investment
with sacrificing alternative use of the invested funds.

Select one:

a.

Real Interest

Advance ruling on Taxation - if a foreign Master Franchisor has any apprehensions or

uncertainties regarding the tax implications of any venture or transaction.

Select one:

True
Higher financial leverage indicates that the franchisee has more liabilities compared
to franchisee’s own capital, it also indicates that probably the franchise business is
recently started.

Select one:

True
In order to measure financial performance, four dimensions such as:

1. Financial Leverage

2. Financial Liquidity

3. Operational Efficiency and

4.The profitability of a business

Select one:
 True
In the US, the information a franchisor is required to provide to the potential
franchisee's, in order to enable them to make an informed decision, is governed by:

Select one:

a.

Federal Trade Commission Rules on Disclosure Requirements and Prohibitions

Concerning Franchising and Business Opportunity Ventures (1979)

Asset
  these are the items owned by a franchisee that has the same
monetary value. 
A further issue which can arise is the Master franchisee /developer /franchisee
desiring to retain at least some of the goodwill established in the franchise and carry
on the business int he territory under a different name.

Select one:

True
The cost of entering a new franchisee

includes expenses right from start-up expenses.

i. Location and site selection

ii. Interior and decoration

iii. Furniture and fixtures

iv. Licensing and permission

v. Franchise fee

Select one:

True
In the United Kingdom, the franchisor-franchisee relationship is governed by:

Select one:

d.
the norms laid down by the British Franchise Association

The net cash flow represents the economic benefits derived from the ownership of
the franchise.

Select one:

True
It is important that following termination, the franchisor takes steps to protect its
trademarks and other intellectual property rights from the abuse by the master
franchisee / developer/franchisee

Select one:

True
Activity ratio
  measures the operational efficiency of a business. It usually
measures performance of fixed assets and current assets of a firm.

  these are the financial obligations of a franchisee that arise during the conduct of
the business.
Liabilities

Margin
  or gross profit the amount of net sales minus cost of goods
sold gives a figure of margin. This is an important component of financial analysis.
The amount of margin should be capable of covering the operating expenses and
leave sufficient scope for net profit.

It is essential to make sure whether the one who is interested in buying a franchise
has adequate financial resources to finance the fixed assets, acquisition of the
business, and maintenance of the business. attempting to stretch beyond one's
financial strength could lead to disaster.

Select one:

True
Financial requirements for a franchise business include:

d.
Cost of entry and cost of operation
Advance tax has to be paid by both, indian and foreign corporate assesses, whose
taxable income exceeds Rs. 5000/-p.a
Select one:

True
Liquidity represents the difficulty with which an investment can quickly be converted
into cash.

Select one:

True
A potential franchisee should meet existing franchisees, if possible, in order to know
the intricacies of the business from the most authentic source.

Select one:

True
Net Sales
 is the revenue earned by franchisee during a financial year.
An amount of net sales is derived after deducting cash discounts
employee discounts, markdowns, and free samples.
Operating Expenses
all  those costs a franchisee has to incur in operating a franchise
business
Net Worth
  the net worth of a franchisee is an arithmetic difference
between total assets held by a franchise and total liabilities of a franchisee.
This is the ended amount of return that investors demand the assumption of risk.

Select one:

b. Risk Premium
At least part of any real estate owned by the master franchisee / developer /
franchisee used in the business may also have to be transferred.

Select one:

True
In the US, the information a franchisor is required to provide to the potential
franchisees, in order to enable them to make an informed decision, is governed by

Select one:

a.
Federal Trade Commission Rules on Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures (1979)

Risk Premium is the ended amount of return that investors demand for the
assumption of risk

Select one:

True
Termination is generally resulted from breach of the franchising
agreement. I Select one:

True

Cost Method approach focuses upon the cost creating an economically equivalent
substitute, i;e replacement value.

Select one:

True
Traditional
 sources of the fund include bank and financial institutions
and provide finance based on their appraisal of the project
feasibility submitted by the franchisee.
Net Profit
  is the portion of gross profit remaining after
providing for sales-related expenses, depreciation and tax
In Japan, the franchising is regulated under:

Select one:

a.

the new guidelines published by Japan Fair Trade Commissions in April 2002

Comparable Value Method market value can be transaction based or security price
based.

Select one:

True
The Peoples Republic of China governs franchising under

Select one:

a.
the Measures for Regulation of Commercial Franchises

It is said that something that cannot be measured cannot be managed

Select one:

True
Non-payment of declared sums is a somewhat easier matter to deal with as the
franchisor can weigh up the pros of entering into litigation

Arrears
Answer: 
A potential franchise should think of appointing consultants who can guide through
the entire process of market potential assessment to location planning, acquisition
and establishment of a franchise.

Select one:

True

Leverage ratio
  measures the financial power of a franchisee and
shows a relationship between debt and equity as well as between total assets and net
worth of a franchisee.

Profitability ratio
measures profitability of a franchise business.

Franchisee’s Obligations: Supply Products & Services to Customers, Recruit, Train and

Supervise Employees, Locate Premises (and take the lease of the premises, if
appropriate), Vehicles (buy/lease suitable vehicle), Intellectual Property, Internet and
Social Media (comply with brand guidelines), Accounting and reporting Requirements

Select one:

True

Liquidity ratio
  measures the franchisee’s abilities to meet short term
liabilities of the business.
If the master franchisor is foreign company, it will be taxed only on income that arises
from operations carried out in Indie or certain cases, on income that is deemed to
have arisen in India. T

Select one:

True

UFOC stands for Answer Uniform Franchise Offering Circular

It is important to know the local sale tax, property tax, and withholding tax applicable
in certain area.

Select one:

True