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

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

• Question 231:

  Harvey Co. is evaluating a capital investment proposal for a new machine. The investment proposal shows the following information:

  

  If acquired, the machine will be depreciated using the straight-line method. The payback period for this investment is:

  A. 3.25 years.
  B. 2.67 years.
  C. 2.5 years.
  D. 2 years.
  C. 2.5 years.

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  Choice "c" is correct. With even cash flows, payback period is calculated as initial cost / annual net cash inflows. That is, $500,000 / $200,000 = 2.5. Choice "a" is incorrect. We could not determine an obvious approach to obtain this answer. It

  is incorrect per the calculation above. Choice "b" is incorrect. This answer is calculated as follows: (initial cost - salvage value) / (annual net cash inflows - annual depreciation) or ($500,000 - $100,000) / ($200,000 - $50,000) = $400,000 /

  $150,000 = 2.67. With the payback period, depreciation should only be considered to the extent that it represents a tax shield.

  Choice "d" is incorrect. This answer appears to be the initial cost less salvage value divided by the annual net cash inflows (($500,000 - $100,000) / $200,000 = 2.0). Salvage value is not included in the correct calculation.

• Question 232:

  The Keego Company is planning a $200,000 equipment investment, which has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment.

  

  The net present value for the investment is:

  A. $18,800
  B. $196,200
  C. $(3,800)
  D. $91,743
  A. $18,800

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  Choice "a" is correct. $18,800 net present value. The net present value of an investment is calculated as the present value of the cash inflows minus the present value of the cash outflows. In this case, there is only one cash outflow (at the purchase date), and that amount ($200,000) is already at present value (or, is multiplied by a present value factor of 1.0).

  

• Question 233:

  The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Under the Revised Uniform Partnership Act, which of the following events will occur on dissolution of the partnership?

  

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

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

  Rule: Upon the dissolution of the partnership, each of the partners continues to have liability for partnership debts. Upon dissolution of the partnership each of the partners will continue to have apparent authority. The apparent authority of a

  partner can only be negated upon proper notice to third parties.

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

• Question 234:

  Managers are often engaged in decision-making. There are numerous logical steps to reach a decision. The step least likely to used by a manager for decision-making would be:

  A. Obtaining information.
  B. Establishment of a strategic vision.
  C. Selecting alternatives.
  D. Identifying alternative courses of action.
  B. Establishment of a strategic vision.

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  Choice "b" is correct. Establishing a strategic vision is not normally included as part of the logical steps to reach a decision. Although decision-making techniques are incorporated as part of establishing a strategic vision and consideration of strategic issues is important, the process of deriving the vision is not considered part of the decision-making process. Choice "a" is incorrect. Obtaining information as a basis for selecting between alternatives is generally viewed as a critical part of decision-making. Choice "c" is incorrect. Selecting alternatives is a specific decision-making action that is generally included as one of the steps identified in decision-making. Choice "d" is incorrect. Identifying alternative courses of action from which to choose is a decision-making process that is generally included as one of the steps identified in decision-making.

• Question 235:

  With respect to the following matters, which is correct if a general partnership agreement is silent?

  A. A partnership will continue indefinitely unless a majority of the partners votes to dissolve the partnership.
  B. Partnership losses are allocated in the same proportion as partnership profits.
  C. A partner may assign his interest in the partnership but only with the consent of the other partners.
  D. A partner may sell the goodwill of the partnership without the consent of the other partners when the sale is in the best interest of the partnership.
  B. Partnership losses are allocated in the same proportion as partnership profits.

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  Choice "b" is correct. As a general principle of partnership law, as well as under the Revised Uniform Partnership Act, in the absence of an agreement otherwise partnership losses are allocated among partners in the same proportion as

  partnership profits.

  Choice "a" is incorrect. A partnership will dissolve on the death, bankruptcy, incapacity, or other withdrawal of a partner, unless the partners vote to continue. Choice "c" is incorrect. A partner may assign his interest in the partnership at any

  time without consent of the partners since such an assignment does not make the assignee a partner; instead it merely gives the assignee the assignor's rights to distributions from the partnership.

  Choice "d" is incorrect. A sale of partnership good will is an extraordinary transaction that requires consent of the partners. A single partner has no authority to make such a sale on his own accord.

• Question 236:

  Which of the following is incorrect with regard to government intervention in market operations?

  A. Government intervention may create a price different from the market price, thus causing either a surplus or a shortage.
  B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.
  C. Price floors are minimum prices established by law, such as minimum wages and agricultural price supports.
  D. Rationing limits the availability of certain goods to a specified level, which lowers demand and prices for a given supply.
  B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.

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  Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor. Choices "a", "c", and "d" are correct statements.

• Question 237:

  If a product's demand is elastic and there is a decrease in price, the effect will be:

  A. A decrease in total revenue.
  B. No change in total revenue.
  C. A decrease in total revenue and the demand curve shifts to the left.
  D. An increase in total revenue.
  D. An increase in total revenue.

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  Choice "d" is correct. If demand is relatively elastic, then the reduction in price will, by definition, produce a proportionately greater increase in quantity demanded. Hence, total revenue will increase. Choices "a", "b", and "c" are incorrect, per above.

• Question 238:

  The profitability index is a variation on which of the following capital budgeting models?

  A. Internal rate of return.
  B. Economic value-added.
  C. Net present value.
  D. Discounted payback.
  C. Net present value.

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  Choice "c" is correct. The profitability index is a variation on the net present value capital budgeting model.

  RULE: The profitability index is the ratio of the present value of net future cash inflows to the present value of the net initial investment. The profitability index is also referred to as the "excess present value index" or simply the "present value

  index." Companies hope that this ratio will be over 1.0, which means that the present value of the inflows is greater than the present value of the outflows.

  

  Choice "a" is incorrect. The profitability index is a companion computation to net present value, not internal rate of return, which measures percentage return.

  Choice "b" is incorrect. The profitability index is a companion computation to net present value, not economic value added.

  Choice "d" is incorrect. The profitability index is a companion computation to net present value, not the discounted payback method, which measures years to payback.

• Question 239:

  Which one of the following would not be considered a carrying cost associated with inventory?

  A. Insurance costs.
  B. Cost of capital invested in the inventory.
  C. Cost of obsolescence.
  D. Shipping costs.
  D. Shipping costs.

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  Choice "d" is correct. Shipping costs (which are selling costs) would not be considered a carrying cost associated with inventory. Choices "a", "b", and "c" are incorrect. Each of the following would be considered a carrying cost associated with inventory.

  A. Insurance costs.

  B. Cost of capital invested in the inventory.

  C. Cost of obsolescence.

• Question 240:

  Atlas Worldwide Industries conducts business in a number of different countries and is trying to evaluate its economic exposure to exchange rate risk. Which of the following statements is not correct?

  A. Atlas will suffer an economic loss in the event it has net cash outflows of a foreign currency and the foreign currency appreciates.
  B. Atlas will enjoy an economic gain in the event it has net cash outflows of a foreign currency and the foreign currency depreciates.
  C. Atlas will suffer an economic loss in the event it has net cash inflows of a foreign currency and the foreign currency appreciates.
  D. Atlas will suffer an economic loss in the event it has net cash inflows of a foreign currency and the foreign currency depreciates.
  C. Atlas will suffer an economic loss in the event it has net cash inflows of a foreign currency and the foreign currency appreciates.

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  Choice "c" is correct. Atlas will benefit from an economic gain in the event that it has net cash inflows of a foreign currency and the foreign currency appreciates (the domestic currency depreciates). Atlas will collect a more valuable currency

  that can buy more of its domestic currency.

  Choices "a", "b", and "d" are incorrect because they are correct statements.