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

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

• Question 171:

  When the federal government imposes health and safety regulations on certain products, one of the most likely results is:

  A. Greater consumption of the product.
  B. Lower prices for the product.
  C. Higher prices for the product.
  D. Increased supply of the product.
  C. Higher prices for the product.

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  Choice "c" is correct. One of the consequences of greater government regulation of certain products is the resulting higher cost to the consumer when the government imposes health and safety regulations on certain products it is likely that

  expenses will increase and that the added costs will be passed on to consumers in terms of higher prices. The total output for the product may decrease.

  Choice "a" is incorrect. Since the price goes up, consumption will decrease.

  Choice "b" is incorrect. The price can be expected to increase (see choice "c" above).

  Choice "d" is incorrect. Since the price goes up, supply goes down.

• Question 172:

  During 1990, Mason Company's current assets increased by $120, current liabilities decreased by $50, and net working capital:

  A. Increased by $70.
  B. Decreased by $170.
  C. Increased by $170.
  D. Decreased by $70.
  C. Increased by $170.

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  Choice "c" is correct. Net working capital is the difference between current assets and current liabilities. Because current assets went up $120 and current liabilities down by $50, the net effect is an increase in net working capital of $170.

  

  Therefore, working capital has increased $170,000.

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

• Question 173:

  The use of an accelerated method instead of the straight-line method of depreciation in computing the net present value of a project has the effect of:

  A. Raising the hurdle rate necessary to justify the project.
  B. Lowering the net present value of the project.
  C. Increasing the present value of the depreciation tax shield.
  D. Increasing the cash outflows at the initial point of the project.
  C. Increasing the present value of the depreciation tax shield.

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  Rule: The greater the depreciation expense, the greater the depreciation tax shield.

  Deprecation Tax Shield =

  Depreciation Expense ?Marginal Tax Rate

  Choice "c" is correct. Use of an accelerated method instead of the straight-line method of depreciation in computing the NPV of a project has the effect of increasing the PV of the deprecation tax shield. Choice "a" is incorrect. Depreciation

  method does not affect the hurdle rate. The hurdle rate is independently selected by management. Choice "b" is incorrect. Using an accelerated method instead of the straight-line method of depreciation will increase the present value of the

  deprecation tax shield and therefore increase the net present value of the project.

  Choice "d" is incorrect. Depreciation method does not affect cash outflows at the initial point of the project.

• Question 174:

  Under the Revised Model Business Corporation Act, when a corporation's bylaws grant stockholders preemptive rights, which of the following rights is(are) included in that grant?

  

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

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  Rule: Preemptive rights provide a shareholder with a right of first refusal to buy a share of newly issued shares sufficient to maintain the shareholder's proportionate share of rights in any newly issued shares. Rule: Preemptive rights do not

  provide a shareholder with the right to a proportionate share of corporate assets on dissolution.

  Choice "c" is correct. "No - Yes."

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

• Question 175:

  In order to sell at the rate of output in markets controlled by monopolists, price is set where:

  A. Price equals marginal cost.
  B. Marginal revenue equals marginal cost.
  C. Marginal revenue equals average total cost.
  D. Price equals average total cost.
  B. Marginal revenue equals marginal cost.

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  Choice "b" is correct. In order to sell at the rate of output in markets controlled by monopolists, the price is set where marginal revenue equals marginal cost. No matter which model is representative of the industry in which the firm operates,

  the firm will maximize profits by producing at MR = MC. The monopolist's price will be higher than MR.

  Choice "a" is incorrect. Price exceeds both MR and MC.

  Choices "c" and "d" are incorrect, which are far-out distractors.

• Question 176:

  Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the action and obtain payment of the fair value of his/her shares?

  I. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares.

  II.

  Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan.

  A. I only.
  B. II only.
  C. Both I and II.
  D. Neither I nor II.
  I. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares. II. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan.
  C. Both I and II.

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  Choice "c" is correct. "Both I and II."

  Rule: Shareholders who vote against a share exchange are entitled to payment for fair value of their shares.

  Rule: Preferred shareholders who dissent to having their preferential rights altered or abolished have dissenters' rights to be paid the fair value of their shares.

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

• Question 177:

  Which one of the following statements concerning cash discounts is correct?

  A. The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.
  B. With trade terms of 2/15, net 60, if the discount is not taken, the buyer receives 45 days of free credit.
  C. The cost of not taking the discount is higher for terms of 2/10, net 60 than for 2/10, net 30.
  D. The cost of not taking a cash discount is generally higher than the cost of a bank loan.
  D. The cost of not taking a cash discount is generally higher than the cost of a bank loan.

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  Choice "d" is correct. The cost of not taking a cash discount is generally higher than the cost of a bank loan.

  Choice "a" is incorrect. The cost of not taking a 2/10, net 30 cash discount is usually more than the prime rate.

  Choice "b" is incorrect. With trade terms of 2/15, net 60, if the discount is not taken, the buyer receives 60 (not 45) days of free credit. Choice "c" is incorrect. The cost of not taking the discount is lower (not higher) for terms of 2/10, net 60 than

  for 2/10, net 30.

• Question 178:

  In considering the payback period for three projects, Fly Corp. gathered the following data about cash flows:

  

  Which of the projects will achieve payback within three years?

  A. Projects A, B, and C.
  B. Projects B and C.
  C. Project B only.
  D. Projects A and C.
  B. Projects B and C.

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  Choice "b" is correct. Projects B and C achieve payback in three years. The payback period for Project A is somewhere between the end of Year 4 and Year 5. For all three projects, Year 1 appears to be a combination of cash outflows (initial

  cost) and cash inflows (return of investment), but it really does not make any difference. When the cumulative cash flow (both inflow and outflow) is zero, the project has paid back. Choice "a" is incorrect. Project A does not pay back within 3

  years even though Projects B and C do. Choice "c" is incorrect. Projects B and C, not just Project B, pay back within 3 years.

  Choice "d" is incorrect. Project A does not pay back within 3 years even though Project C does.

• Question 179:

  Which of the following correctly lists the three ways to increase the money supply?

  A. Raise the required reserve ratio, increase the discount rate, sell bonds in the open market.
  B. Raise the required reserve ratio, increase the discount rate, buy bonds in the open market.
  C. Lower the required reserve ratio, increase the discount rate, buy bonds in the open market.
  D. Lower the required reserve ratio, decrease the discount rate, buy bonds in the open market.
  D. Lower the required reserve ratio, decrease the discount rate, buy bonds in the open market.

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  Choice "d" is correct. The three ways the Fed can increase the money supply are: (1) buy (purchase) government securities in the open market, (2) lower the discount rate, and (3) lower the required reserve ratio.

  Choice "a" is incorrect, per above Explanation.

  Choice "b" is incorrect, per above Explanation.

  Choice "c" is incorrect, per above Explanation.

• Question 180:

  Heather, Erika, and Shelby are members in HES LLC. Heather dies. Absent an agreement to the contrary, what is the result?

  A. The LLC must dissolve.
  B. The LLC ceases to exist.
  C. The LLC is dissolved unless the other members consent to continue.
  D. The LLC continues as though nothing happened.
  C. The LLC is dissolved unless the other members consent to continue.

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  Choice "c" is correct. Absent an agreement to the contrary, if a member of an LLC dies, the LLC is dissolved unless the other members consent to continue.

  Choice "a" is incorrect, because the LLC does not have to dissolve upon the death of a member.

  Choice "b" is incorrect, because the LLC does not cease to exist immediately.

  Choice "d" is incorrect, because the LLC does not continue unless the members consent to continue.