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

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

• Question 111:

  The method that recognizes the time value of money by discounting the after-tax cash flows over the life of a project, using the company's minimum desired rate of return is the:

  A. Accounting rate of return method.
  B. Net present value method.
  C. Internal rate of return method.
  D. Payback method.
  B. Net present value method.

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  Choice "b" is correct. The net present value method recognizes the time value of money and discounts cash flows over the life of a project, using the minimum desired (hurdle) rate.

  Choice "a" is incorrect. The accounting rate of return is the accrual accounting increase compared to the initial investment.

  Choice "c" is incorrect. IRR is similar to NPV, but does not assume a desired rate of return. The rate is calculated that produces a NPV of zero.

  Choice "d" is incorrect. Payback method does not recognize the time value of money.

• Question 112:

  Under the Revised Uniform Limited Partnership Act and in the absence of a contrary agreement by the partners, which of the following events is most likely to dissolve a limited partnership?

  A. A majority vote in favor by the partners.
  B. A two-thirds vote in favor by the partners.
  C. A withdrawal of a majority of the limited partners.
  D. Withdrawal of the only general partner.
  D. Withdrawal of the only general partner.

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  Choice "d" is correct. Absent a contrary agreement of the partners, a limited partnership can be dissolved by written consent of all the general partners, withdrawal or death of a general partner, or judicial decree. Thus, withdrawal of the only general partner would cause dissolution. (There has to be at least one general partner in a limited partnership.) Choice "a" is incorrect. It takes unanimous written consent of all general partners to dissolve the limited partnership, not majority vote. Choice "b" is incorrect. It takes unanimous written consent of all general partners to dissolve the limited partnership, not two-thirds vote. Choice "c" is incorrect. Death or withdrawal of a limited partner does not cause dissolution. Only death or withdrawal of a general partner causes dissolution.

• Question 113:

  For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholders' derivative suit in the name of the corporation?

  A. To compel payment of a properly declared dividend.
  B. To enforce a right to inspect corporate records.
  C. To compel dissolution of the corporation.
  D. To recover damages from corporate management for an ultra vires management act.
  D. To recover damages from corporate management for an ultra vires management act.

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  Choice "d" is correct. A derivative action is an action by a stockholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corporation when the corporation does not enforce its own rights. Such actions are often brought when the directors or officers have breached their duty to the corporation and have refused to sue themselves. An ultra vires act is an act outside of a director's or an officer's scope of authority and thus is a breach of duty to the corporation. Choices "a", "b", and "c" are incorrect, because these would all be causes of action against the corporate directors or officers on behalf of the stockholder to recover damages or seek some other remedy against the corporate directors or officers on behalf of the stockholder, not on behalf of the corporation.

• Question 114:

  A project has an initial outlay of $1,000. The projected cash inflows are: What is the investment's payback period?

  

  A. 4.0 years.
  B. 3.5 years.
  C. 3.4 years.
  D. 3.0 years.
  B. 3.5 years.

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  Choice "b" is correct. The payback period is computed as the number of years required to fully recover the original investment with out respect to the time value of money. With uneven cash flows, the payback period is computed by development of a cumulative payback balance converted to years as follows:

  

  Choice "a" is incorrect. Although the payback occurs in the fourth year, only half the year is required. The payback period is 3.5, not 4.0 years. Choice "c" is incorrect. Although the payback occurs in the fourth year, half the year is required. The payback period is 3.5, not 3.4 years. Choice "d" is incorrect. The payback occurs in the fourth year. The payback period is 3.5, not 3.0 years. Strategies for Short-term and Long-term Financing

• Question 115:

  A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and will reduce the ratio of credit sales to total revenue from 70 to 60 percent. The company estimates that projected sales would be five percent less if the proposed new credit policy is implemented. If projected sales for the coming year are $50 million, calculate the dollar impact on accounts receivable of this proposed change in credit policy. Assume a 360-day year.

  A. $3,817,445 decrease.
  B. $6,500,000 decrease.
  C. $3,333,334 decrease.
  D. $18,749,778 increase.
  C. $3,333,334 decrease.

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  Choice "c" is correct. $3,333,334 decrease in accounts receivable.

• Question 116:

  In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?

  A. Absorption costs.
  B. Direct costs.
  C. Variable costs.
  D. Incremental costs.
  A. Absorption costs.

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  Choice "a" is correct. Absorption costs are not relevant in situations when management must decide on accepting or rejecting one-time-only special orders, and where there is sufficient idle capacity. All of the following costs are relevant in such situations:

  B. Direct costs

  C. Variable costs

  D. Incremental costs

• Question 117:

  Knox, president of Quick Corp., contracted with Tine Office Supplies, InC. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:

  A. Void because of Knox's self-dealing.
  B. Void because the disclosure was made after execution of the contract.
  C. Valid because of Knox's full disclosure.
  D. Valid because the contract is fair to Quick.
  D. Valid because the contract is fair to Quick.

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  Choice "d" is correct. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid. Choice "a" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair. Choice "b" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair. Choice "c" is incorrect. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or shareholders, who then approve the transaction, or the director can prove that the transaction was fair. Mere disclosure after the contract was adopted does not automatically render the contract valid.

• Question 118:

  The articles of organization for a limited liability company must contain everything, except the following:

  A. The name of the entity that includes some indication it is a LLC.
  B. The name and address of the registered agent.
  C. Number of shares authorized and issued.
  D. If the company is to be manager managed, a statement to that effect.
  C. Number of shares authorized and issued.

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  Choice "c" is correct. Limited liability companies do not issue "shares" held by shareholders like in a corporation. Instead, members (the owners) are said to have "interests" in the LLC. Choices "a", "b", and "d" are incorrect. These are all required to be included in the articles of organization.

• Question 119:

  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. 9.20 percent.
  B. 12.20 percent.
  C. 7.20 percent.
  D. 10.00 percent.

  A. 9.20 percent.

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  Choice "a" is correct. 9.20 percent expected rate of return. Choices "b", "c", and "d" are incorrect, per the above calculation.

• Question 120:

  Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit:

  A. Have a secondary market for investors.
  B. Are regulated by the Federal Reserve System.
  C. Are usually sold in denominations of a minimum of $100,000.
  D. Have yields considerably greater than bankers' acceptances and commercial paper.
  D. Have yields considerably greater than bankers' acceptances and commercial paper.

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  Choice "d" is correct. Negotiable CDs generally carry interest rates slightly lower than bankers' acceptances (which are drafts drawn on deposits at a bank) or commercial paper (which is unsecured debt issued by credit worthy customers).

  Choice "a" is incorrect. Negotiable CDs have a formal secondary market.

  Choice "b" is incorrect. Negotiable CDs are a product of the banking industry, which is regulated by the Federal Reserve Board.

  Choice "c" is incorrect. Negotiable CDs are usually sold in denominations of a minimum of $100,000.