Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Practice Questions and Exam Preparation

Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Questions & Answers

• Question 91:

  A working capital technique that increases the payable float and, therefore, delays the outflow of cash is:

  A. Concentration banking.
  B. A draft.
  C. A lock-box system.
  D. The use of a local post office box.
  B. A draft.

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  Choice "b" is correct. A draft is a working capital technique that increases the payable float and, therefore, delays the outflow of cash.

  Each of the three following choices accelerate the flow of cash and/or data:

  Choice "a" is incorrect. Concentration banking automatically channels funds from every source of the business into a single usable account, thus quickly identifying available funds each day, and moving them to accounts that have funding

  requirements that day, and investing the remainder in short-term, interest-bearing instruments until needed.

  Choice "c" is incorrect. A lock-box system is simply a central collection location that receives payment checks (generally, the bank where a central checking account is maintained by the firm). Choice "d" is incorrect. The use of a local post

  office box allows more rapid access to mail than actual delivery to a street address.

• Question 92:

  Corbin Inc. can issue three-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs would be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year, would be:

  A. 2.16%
  B. 8.48%
  C. 8.65%
  D. 8.00%
  C. 8.65%

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  Choice "c" is correct. The cost to issue the commercial paper is the $20,000 original issue discount ($1 million - $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow $980,000 for 3 months.

  The 3-month interest cost is 2.16% ($21,200 / $980,000).

  The annual interest cost is 8.65%

  Choices "a", "b", and "d" are incorrect, per the above calculation.

• Question 93:

  Which of the following is not considered a factor that increases the bargaining power of the customer?

  A. Much information is available to the customer to compare and contrast features of all products on the market.
  B. One group of customers makes up a large volume of the firm's business.
  C. Strategic alliances have been formed with suppliers and other firms.
  D. Several alternate suppliers (sellers) of the product exist.
  C. Strategic alliances have been formed with suppliers and other firms.

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  Choice "c" is correct. When strategic alliances exist between a supplier and other firms that is a situation, which increases the bargaining power of the suppliers. Choices "a", "b", and "d" are incorrect because they all are factors that increase

  the bargaining power of the customer, which are:

  ?Customers make up a large volume of a firm's business.

  ?There is much information available to customers.

  ?The buyers have low switching costs.

  ?There are a high number of alternate suppliers (sellers) of the product.

• Question 94:

  DQZ Telecom is considering a project for the coming year, which will cost $50 million. DQZ plans to use the following combination of debt and equity to finance the investment.

  A. 11.80 percent.
  B. 8.08 percent.
  C. 10.00 percent.
  D. 7.92 percent.

  B. 8.08 percent.

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  Choice "b" is correct. 8.08 percent before-tax cost of debt financing, net of flotation costs.

  

• Question 95:

  Inflation can be caused by:

  A. Increases in aggregate demand only.
  B. Increases in aggregate supply only.
  C. Decreases in aggregate demand and increases in aggregate supply.
  D. Increases in aggregate demand and decreases in aggregate supply.
  D. Increases in aggregate demand and decreases in aggregate supply.

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  Choice "d" is correct. Both an increase in aggregate demand and a decrease in aggregate supply can cause inflation.

  Choice "a" is incorrect. While an increase in aggregate demand can cause inflation, it is not the only cause of inflation.

  Choice "b" is incorrect. An increase in aggregate supply would lower the overall price level, not increase the overall price level. Choice "c" is incorrect. A decrease in aggregate demand would lower the overall price level, not increase the

  overall price level.

• Question 96:

  Unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to:

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  C. Option C

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  Choice "c" is correct.

  Rules: A partner has no right to assign an interest in partnership property because a partner's rights in partnership property are limited to using the property for partnership purposes. However, a partner does have a right to assign her interest

  in partnership distributions. The assignee does not become a partner, but merely has a right to receive whatever distributions the assignor would have received.

  Choices "a", "b", and "d" are incorrect, per the above rules.

• Question 97:

  The net present value (NPV) of a project has been calculated to be $215,000. Which one of the following changes in assumptions would decrease the NPV?

  A. Decrease the estimated effective income tax rate.
  B. Extend the project life and associated cash inflows.
  C. Increase the estimated salvage value.
  D. Increase the discount rate.
  D. Increase the discount rate.

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  Choice "d" is correct. An increase in the discount rate will decrease the present value of future cash inflows and, therefore, decrease the net present value of the project.

  Each of the other options would increase the NPV:

  Choice "a" is incorrect. A decrease in the estimated effective income tax rate will reduce the depreciation tax shield and therefore increase the cash inflow. A larger cash inflow in the future will increase the present value of the cash inflows

  and therefore increase the net present value of the project.

  Choice "b" is incorrect. Increasing the project life and associated cash inflows will increase the present value of the cash inflows and therefore increase the net present value. Choice "c" is incorrect. An increase in the estimated salvage value

  will decrease the present value of the cash outflow and therefore increase the net present value.

• Question 98:

  The trough of a business cycle is generally characterized by:

  A. Shortages of essential raw materials and rising costs.
  B. Increasing purchasing power and increasing capital investments.
  C. Unused productive capacity and an unwillingness to risk investments.
  D. Declining purchasing power and unused productive capacity.
  C. Unused productive capacity and an unwillingness to risk investments.

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  Choice "c" is correct. The trough of a business cycle is an economic low point with no positive indicators for the future. It is characterized by unused productive capacity and an unwillingness to risk new investments.

  Choice "a" is incorrect. Shortages may occur during a peak.

  Choice "b" is incorrect. Increasing purchasing power and increasing capital investments come with recovery.

  Choice "d" is incorrect. Declining purchasing power comes with inflation; unlikely in a trough.

• Question 99:

  Under the Revised Model Business Corporation Act, which of the following statements regarding a corporation's bylaws is(are) correct?

  I. A corporation's initial bylaws shall be adopted by either the incorporators or the board of directors.

  II.

  A corporation's bylaws are contained in the articles of incorporation.

  A. I only.
  B. II only.
  C. Both I and II.
  D. Neither I nor II.
  I. A corporation's initial bylaws shall be adopted by either the incorporators or the board of directors. II. A corporation's bylaws are contained in the articles of incorporation.
  A. I only.

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  Choice "a" is correct. Under the Revised Model Business Corporation act, a corporation's initial bylaws may be adopted by either the incorporators or the board of directors. Choices "b" and "c" are incorrect, because the corporation's bylaws are a separate document not included in the corporation's articles of incorporation. Choice "d" is incorrect, because under the Revised Model Business Corporation Act, a corporation's initial bylaws may be adopted by either the incorporators or the board of directors.

• Question 100:

  Jones, Smith, and Bay wanted to form a company called JSB Co. but were unsure about which type of entity would be most beneficial based on their concerns. They all desired the opportunity to make taxfree contributions and distributions

  where appropriate. They wanted earnings to accumulate tax-free.

  They did not want to be subject to personal holding tax and did not want double taxation of income. Bay was going to be the only individual giving management advice to the company and wanted to be a member of JSB through his current

  company, Channel, InC. Which of the following would be the most appropriate business structure to meet all of their concerns?

  A. Proprietorship.
  B. S corporation.
  C. C corporation.
  D. Limited liability partnership.
  D. Limited liability partnership.

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  Choice "d" is correct. An LLP does not pay taxes on its earnings. Instead, the profits and losses flow through to the partners as in a general partnership. The LLP files an informational tax return like that of a general partnership. The partners

  may agree to have the entity managed by one or more of the partners.

  A partner may be another entity.

  Choice "a" is incorrect. A proprietorship by definition has only one owner, not three owners.

  Choice "b" is incorrect. While an S corporation allows for the same treatment of its earnings and distributions as in the facts, it is prohibited from having another company as an owner. Choice "c" is incorrect. A C corporation pays its own taxes

  on its earnings, and any distributions to its shareholders are again taxed at the shareholder level (known as "double taxation").