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

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

• Question 181:

  If the federal government were to regulate a product or service in a competitive market by setting a maximum price that is below the equilibrium price, then in the long run this action will:

  A. Result in a surplus.
  B. Result in a shortage.
  C. Cause a decrease in price.
  D. Have no effect on the market.
  B. Result in a shortage.

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  Choice "b" is correct. Setting a maximum or ceiling price, which is below the equilibrium price dictated by a competitive market, would result in a shortage as a result of excess demand. Choices "a", "c", and "d" are incorrect, per the above Explanation.

• Question 182:

  The optimal capitalization for an organization usually can be determined by the:

  A. Maximum degree of financial leverage (DFL).
  B. Maximum degree of total leverage (DTL).
  C. Lowest total weighted-average cost of capital (WACC).
  D. Intersection of the marginal cost of capital and the marginal efficiency of investment.
  C. Lowest total weighted-average cost of capital (WACC).

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  Choice "c" is correct. The optimal capitalization for an organization usually can be determined by the lowest total weighted-average cost of capital (WACC). Capitalization at WACC serves to maximize shareholder's equity. Choice "a" is incorrect. The degree of financial leverage relates to the risk assumed by a firm using fixed debt service costs to finance operations not comprehensively to capital structure. Choice "b" is incorrect. The degree of total leverage relates the risk assumed by a firm using a combination of both debt services costs to finance operations and fixed costs to operate the business, not comprehensively to capital structure. Choice "d" is incorrect. The intersection of the marginal cost of capital and the marginal efficiency of investment does not indicate optimal capitalization.

• Question 183:

  Entry into monopolistic competition is:

  A. Frequent, as no obstacles exist.
  B. Difficult, with significant obstacles.
  C. Rare, as significant capital is required.
  D. Relatively easy, with only a few obstacles.
  D. Relatively easy, with only a few obstacles.

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  Choice "d" is correct. The characteristics of monopolistic competition include:

  ?Numerous firms with differentiated products.

  ?Ease of entry - few barriers.

  ?Firms exact some influence over price and market.

  ?Non-price competition is frequent and critical.

  Choice "a" is incorrect. Monopolistic competition has a few obstacles. A market with no obstacles is in perfect competition.

  Choice "b" is incorrect. Significant obstacles are characteristic of oligopoly.

  Choice "c" is incorrect. Significant capital requirements represent a significant barrier to entry, which is characteristic of oligopoly.

• Question 184:

  The amount of inventory that a company would tend to hold in stock would increase as the:

  A. Cost of carrying inventory decreases.
  B. Variability of sales decreases.
  C. Cost of running out of stock decreases.
  D. Length of time that goods are in transit decreases.
  A. Cost of carrying inventory decreases.

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  Choice "a" is correct. The amount of inventory that a company would tend to hold in stock would increase as the cost of carrying inventory decreases. The amount of inventory that a company would tend to hold in stock would decrease as the:

  B. Variability of sales decreases.

  C. Cost of running out of stock decreases.

  D. Length of time that goods are in transit decreases.

• Question 185:

  Within the framework of the aggregate demand/aggregate supply model, an increase in short run aggregate supply will cause:

  A. Real output to expand and the price level to fall.
  B. Real output to decline and the price level to rise.
  C. Real output to expand and the price level to rise.
  D. Real output to decline and the price level to fall.
  A. Real output to expand and the price level to fall.

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  Choice "a" is correct. A shift right in short run aggregate supply causes output to increase and the price level to fall.

  Choice "b" is incorrect. Real output would rise, not fall.

  Choice "c" is incorrect. The price level would fall, not rise.

  Choice "d" is incorrect. Real output would rise, not fall.

• Question 186:

  Which of the following may not own shares in an S corporation?

  A. Individuals.
  B. Estates.
  C. Trusts.
  D. Corporations.
  D. Corporations.

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  Choice "d" is correct. Shareholders must be individuals, estates, or certain trusts. Corporations are not permitted to be shareholders of an S corporation. Choices "a", "b", and "c" are incorrect, per the above Explanation.

• Question 187:

  Which of the following is not correct regarding best cost provider strategies?

  A. The overall lowest cost in the industry is not a viable option in best cost strategies because the firm could not compete profit-wise with its differentiation strategy component.
  B. When generic products are not acceptable to buyers, yet they still remain price sensitive to the value they are receiving for their money, the best cost strategy may work well.
  C. The best cost strategy is a combination of the benefits of the cost leadership and differentiation strategies.
  D. The best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the highest cost among its closest competitors with a quality differentiated product in an effort to obtain the highest profits.
  D. The best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the highest cost among its closest competitors with a quality differentiated product in an effort to obtain the highest profits.

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  Choice "d" is correct because it is not a correct statement. The best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the lowest (not highest) cost among its closest competitors while matching

  them on the features desired by consumers.

  Choices "a", "b", and "c" are incorrect, as they are all true statements regarding best cost provider strategies.

• Question 188:

  A company has daily cash receipts of $150,000. The treasurer of the company has investigated a lockbox service whereby the bank that offers this service will reduce the company's collection time by four days at a monthly fee of $2,500. If money market rates average four percent during the year, the additional annual income (loss) from using the lockbox service would be:

  A. $6,000
  B. $(6,000)
  C. $12,000
  D. $(12,000)
  B. $(6,000)

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  Choice "b" is correct. $(6,000). A company's decision to commit to a lockbox plan is an example of marginal analysis. In other words, do the marginal benefits exceed the marginal costs of the plan?

  

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

• Question 189:

  White, Grey, and Fox formed a limited partnership. White is the general partner and Grey and Fox are the limited partners. Each agreed to contribute $200,000. Grey and Fox each contributed $200,000 in cash while White contributed

  $150,000 in cash and $50,000 worth of services already rendered. After two years, the partnership is insolvent. The fair market value of the assets of the partnership is $150,000 and the liabilities total $275,000. The partners have made no

  withdrawals.

  Unless otherwise provided in the certificate of limited partnership, which of the following is correct if Fox assigns her interest in the partnership to Barr and only White consents to Barr's admission as a limited partner?

  A. Barr will not become a substituted limited partner unless Grey also consents.
  B. Barr will have the right to inspect the partnership's books.
  C. The partnership will be dissolved.
  D. Barr will become a substituted limited partner because White, as general partner, consented.
  A. Barr will not become a substituted limited partner unless Grey also consents.

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  Choice "a" is correct. In the absence of an agreement between all partners, the assignment of a partner's interest does not make the assignee a substitute partner; it merely transfers the assignor's rights to distributions to the assignee. Choice

  "b" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership and does not give the assignee

  any right to inspect the partnership's books.

  Choice "c" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership; it does not make the

  assignee a new partner. Since there is no change in who is a partner, there is no dissolution.

  Choice "d" is incorrect. All partners must agree to make someone a partner, not just the general partner.

• Question 190:

  Which of the following transactions does not change the current ratio and does not change the total current assets?

  A. A cash advance is made to a divisional office.
  B. A cash dividend is declared.
  C. Short-term notes payable are retired with cash.
  D. Equipment is purchased with a three-year note and a 10 percent cash down payment.
  A. A cash advance is made to a divisional office.

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  Choice "a" is correct. This does not change the current ratio because the reduction of cash is offset by an increase in accounts receivable. Choice "b" is incorrect. A cash dividend increases current liabilities without increasing current assets. Although current assets remain unchanged (until the payment happens), the current ratio will change. Choice "c" is incorrect. Cash is reduced and current liabilities are reduced. Total current assets will change (they will be reduced). Choice "d" is incorrect. The payment of cash reduces current assets. Long-term assets are increased, as well as long-term and short-term liabilities. The current ratio is reduced.