Which of the Following Is True of Franchising

question 66

Multiple Choice

Which of the following is true of franchising?

• A)A franchise is essentially an unpackaged business, where the policies, procedures, and buying patterns have to be established prior to beginning operations.
• B)The purchase of a well-honed, thoughtfully positioned franchise can dramatically decrease the downside risk inherent in the process of starting a business.
• C)There is no difference in the risk of buying a franchise and buying an existing business.
• D)Franchising is viewed as a new business entrepreneur's creation of a business from scratch.

---

Definitions:

Passive Activity

Economic activities in which the taxpayer does not materially participate, often producing income subject to special tax rules.

Materially Participate

Involvement in the operations of a business or activity in a regular, continuous, and substantial way, affecting the tax consequences.

AMT Tax Rate

The percentage applied to compute the Alternative Minimum Tax, ensuring that taxpayers pay a minimum amount of tax.

Qualified Nonrecourse Financing

Debt financing for which the borrower is not personally liable and which is secured by real property used in the borrower’s trade or business.