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

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

• Question 221:

  The internal rate of return for a project can be determined:

  A. Only if the project cash flows are constant.
  B. By finding the discount rate that yields a net present value of zero for the project.
  C. By subtracting the firm's cost of capital from the project's profitability index.
  D. Only if the project's profitability index is greater than one.
  B. By finding the discount rate that yields a net present value of zero for the project.

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  Choice "b" is correct. The internal rate of return (IRR) is the discount rate that produces a NPV of zero.

  Choice "a" is incorrect. IRR valuation does not require cash flows that are constant.

  Choice "c" is incorrect. Cost of capital is a percentage, profitability index is a ratio; this won't work.

  Choice "d" is incorrect. IRR can be determined even if the profitability index is less than 1.0. A profitability index of less than 1.0 means a negative NPV, which means the IRR is less than the discount rate being used.

• Question 222:

  Which of the following securities are corporate debt securities?

  

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

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  Choice "c" is correct.

  Rules: Bonds are debt securities. Thus, convertible bonds and debenture bonds are debt securities. A warrant is a contractual right to purchase stock, which constitutes a share of corporate equity.

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

• Question 223:

  Determining the appropriate level of working capital for a firm requires:

  A. Changing the capital structure and dividend policy of the firm.
  B. Maintaining short-term debt at the lowest possible level because it is generally more expensive than long-term debt.
  C. Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.
  D. Maintaining a high proportion of liquid assets to total assets in order to maximize the return on total investments.
  C. Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.

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  Choice "c" is correct. Determining the appropriate level of working capital for a firm requires offsetting the benefit of current assets and current liabilities against the probability of technical insolvency. Choice "a" is incorrect. Changing the capital structure (common stock vs. preferred stock vs. long-term debt) and dividend policy has nothing to do with the level of working capital required for day-to-day operations of the business. Choice "b" is incorrect. The relative interest cost of short-term vs. long-term debt does not determine the appropriate level of working capital. Choice "d" is incorrect. Because profitability varies inversely with liquidity, maximizing the return on total investments would require a low (not high) level of liquid assets and a high level of liquid assets does nothing to determine the required level of working capital.

• Question 224:

  Acorn and Bean were general partners in a farm machinery business. Acorn contracted, on behalf of the partnership, to purchase 10 tractors from Cobb Corp. Unknown to Cobb, Acorn was not authorized by the partnership agreement to make such contracts. Bean refused to allow the partnership to accept delivery of the tractors and Cobb sought to enforce the contract. Cobb will:

  A. Lose because Acorn's action was beyond the scope of Acorn's implied authority.
  B. Prevail because Acorn had implied authority to bind the partnership.
  C. Prevail because Acorn had apparent authority to bind the partnership.
  D. Lose because Acorn's express authority was restricted, in writing, by the partnership agreement.
  C. Prevail because Acorn had apparent authority to bind the partnership.

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  Choice "c" is correct. A general partner has apparent authority to bind the partnership and other partners in respect to all ordinary transactions within the apparent scope of the partnership business. A farm machinery business probably

  regularly purchases tractors. Thus, there was apparent authority here.

  Choices "a" and "b" are incorrect. Implied authority is authority that an agent reasonably believes he or she was given by the principal along with any express authority. Because Acorn knew that he did not have express authority to make the

  contracts here, he could not reasonably believe that he had implied authority to do so.

  Choice "d" is incorrect. The seller was not aware of Acorn's lack of express authority. Therefore, Cobb relied on Acorn's apparent authority.

• Question 225:

  Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000, Clark, $30,000, and Beal, $10,000. It was also agreed that in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is correct?

  A. Profits are to be divided among the partners in proportion to their relative capital contributions.
  B. Profits are to be divided equally among the partners.
  C. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.
  D. Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.
  B. Profits are to be divided equally among the partners.

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  Choice "b" is correct.

  Rule: Regardless of the contributions and obligations of the partners, unless the partnership agreement specifically states otherwise, all partners are entitled to an equal share of the profits.

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

• Question 226:

  Managerial performance can be measured in many different ways including return on investment (ROI) and residual income (RI). A good reason for using RI instead of ROI is that:

  A. RI can be computed without regard to identifying an investment base.
  B. Goal congruence is more likely to be promoted by using RI.
  C. RI is well understood and often used in the financial press.
  D. ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage.
  B. Goal congruence is more likely to be promoted by using RI.

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  Choice "b" is correct. Goal congruence is promoted through the use of the residual income approach. The ROI approach may cause segments that achieve high returns to reject investments that may benefit the company but lower the

  segment's rate of return.

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

• Question 227:

  Unless otherwise provided in a general partnership agreement, which of the following statements is correct when a partner dies?

  

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

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  Choice "d" is correct. "No - No - No."

  Upon the death of a general partner:

  Rule: A partner's death is an event of dissociation. Where a partner dissociates, the partner's right to participate in the management ceases; the partner's executor does not take the partner's place. Rule: The partner's estate remains liable for

  the partner's obligations to the partnership and has a right to the deceased partner's share of distributions. Rule: Under the Revised Uniform Partnership Act, a partnership does not automatically dissolve on the death of a partner; rather it will

  dissolve only if 90 days pass and the remaining partners do not wish to continue the partnership.

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

• Question 228:

  In a competitive market an increase in the minimum wage will likely have the following effects:

  A. The general (or aggregate) demand for labor will increase; however, the quantity demanded will remain unchanged.
  B. The general (or aggregate) supply of labor will increase; however, the quantity supplied will remain unchanged.
  C. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.
  D. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will decrease.
  C. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.

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  Choice "c" is correct. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.

  Choice "a" is incorrect, per for choice "c" above.

  Choices "b" and "d" are incorrect. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will increase.

• Question 229:

  Which one of the following provides a spontaneous source of financing for a firm?

  A. Accounts payable.
  B. Accounts receivable.
  C. Debentures.
  D. Preferred stock.
  A. Accounts payable.

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  Choice "a" is correct. Accounts payable provide a spontaneous source of financing for a firm.

  Choice "b" is incorrect. Accounts receivable take time to factor.

  Choices "c" and "d" are incorrect.

  Each of the following take time to issue:

  C. Debentures.

  D. Preferred stock.

• Question 230:

  Generally, a corporation's articles of incorporation must include all of the following, except the:

  A. Name of the corporation's registered agent.
  B. Name of each incorporator.
  C. Number of authorized shares.
  D. Quorum requirements.
  D. Quorum requirements.

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  Choice "d" is correct. A corporation's articles of incorporation need not contain any information regarding quorum requirements. Choices "a", "b", and "c" are incorrect because under the Revised Model Business Corporations Act a corporation's articles of incorporation must include:

  (1)

  The name of the corporation,

  (2)

  The name and address of the corporation's registered agent,

  (3)

  The names and addresses of each of the incorporators, and

  (4)

  The number of shares authorized to be issued.