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

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

• Question 241:

  Which of the following methods is designed to measure transaction exposure in terms of the maximum one day loss related to holdings denominated in foreign currency?

  I. Measurement of currency variability.

  II. Measurement of currency correlations.

  III.

  Value at risk.

  A. I only.
  B. II only.
  C. III only.
  D. I, II, and III.
  I. Measurement of currency variability. II. Measurement of currency correlations. III. Value at risk.
  C. III only.

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  Choice "c" is correct. The value at risk method seeks to quantify the exposure of business to a one day loss in the value of its positions in foreign currencies. Choices "a", "b", and "d" are incorrect, per above Explanation.

• Question 242:

  The apparent authority of a partner to bind the partnership in dealing with third parties:

  A. Will be effectively limited by a formal resolution of the partners of which third parties are aware.
  B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware.
  C. Would permit a partner to submit a claim against the partnership to arbitration.
  D. Must be derived from the express powers and purposes contained in the partnership agreement.
  A. Will be effectively limited by a formal resolution of the partners of which third parties are aware.

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  Choice "a" is correct. This is really an agency question on apparent authority. Apparent authority is authority that a third party reasonably believes an agent has. If the third party is aware of a restriction on the agent's authority, the third party

  cannot reasonably believe that the agent has the restricted authority.

  Choice "b" is incorrect. A formal resolution of the partners will not be effective to destroy authority if a third party is aware of the resolution, but not if the third party is unaware of the resolution. Choice "c" is incorrect. Submitting a claim to

  arbitration is an extraordinary act. A partner has apparent authority only to enter into transactions apparently carrying on in the usual way the business of the partnership. There is no apparent authority to enter into an extraordinary transaction.

  Choice "d" is incorrect. Apparent authority is derived from what a reasonable person believes concerning the authority of a partner based on the partnership's actions toward the third party; authority derived from the express powers and

  purposes contained in the partnership agreement is actual authority.

• Question 243:

  Under which of the following conditions is the supplier most able to influence or control buyers?

  A. When the supplier's products are not differentiated.
  B. When the supplier does not face the threat of substitute products.
  C. When the industry is controlled by a large number of companies.
  D. When the purchasing industry is an important customer to the supplying industry.
  B. When the supplier does not face the threat of substitute products.

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  Choice "b" is correct. When there are few good substitutes for a supplier's product, the supplier has market power (think of a monopoly). As a result, the supplier is better able to control buyers and act as a price setter rather than a price taker.

  Choice "a" is incorrect. When supplier's products are not differentiated, buyers will be indifferent about which supplier they purchase from. In other words, if firms sell identical products (think of perfect competition) the product of one firm is a

  perfect substitute for the product of another firm. In this case, firms are price takers, not price setters.

  Choice "c" is incorrect. When there are a large number of firms, no one firm has much market power.

  This is the case of either perfect competition (if all firms sell identical products) or monopolistic competition (if all firms sell slightly differentiated products). Choice "d" is incorrect. If the purchasing industry is an important customer of the

  supplier, the purchasing industry (i.e. the buyer) will have some market power. This will diminish the ability of the supplier to influence or control the buyer.

• Question 244:

  Under the Revised Model Business Corporation Act, a merger of two public corporations usually requires all of the following, except:

  A. A formal plan of merger.
  B. An affirmative vote by the holders of a majority of each corporation's voting shares.
  C. Receipt of voting stock by all stockholders of the original corporations.
  D. Approval by the board of directors of each corporation.
  C. Receipt of voting stock by all stockholders of the original corporations.

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  Choice "c" is correct. A merger can be effected by giving some parties cash or property; not everyone need receive voting shares.

  Choice "a" is incorrect. The merger must be pursuant to a formal plan.

  Choice "b" is incorrect. The majority of each corporation generally must approve a merger.

  Choice "d" is incorrect. A plan of merger must be approved by the boards of the merging corporations.

• Question 245:

  Wendy's Sandwich Shop purchased an asset for $100,000 that has no salvage value and a 10-year life.

  Wendy's effective income tax rate is 40 percent, and it uses the straight-line depreciation method for income tax reporting purposes. Wendy's annual depreciation tax shield from the asset would be:

  A. $10,000
  B. $6,000
  C. $4,000
  D. $2,000
  C. $4,000

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  Choice "c" is correct. $4,000 annual depreciation tax shield.

  

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

• Question 246:

  Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership. Park wishes to dissociate from the partnership. Which of the following statements is correct?

  A. Park may dissociate from the partnership at any time.
  B. Unless Graham consents to the dissociation, Park must apply to a court and obtain a decree ordering the dissociation.
  C. Park may not dissociate from the partnership unless Graham consents.
  D. Park may dissociate from the partnership only after notice of the proposed dissolution is given to all partnership creditors.
  A. Park may dissociate from the partnership at any time.

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  Choice "a" is correct. Because the agreement is silent as to duration, it is a partnership at will. A partner may dissociate from a partnership at will at any time. Choice "b" is incorrect. Because the agreement is silent as to duration, it is a

  partnership at will. A partner may dissociate from a partnership at will at any time. No court order is required. Choice "c" is incorrect. Partnerships are consensual relationships, so any partner has the power to dissociate at any time; he or she

  need not obtain the consent of the other partners (though absent consent, the partner will be liable for damages if the dissociation is wrongful).

  Choice "d" is incorrect. There is no requirement of giving partnership creditors a formal notice of intent to dissociate, but it is a good idea to do so to avoid liability on future partnership obligations.

• Question 247:

  A sole proprietorship would be an ideal form of business to select if:

  A. The individual desired no liability beyond his capital investment.
  B. The individual wanted to be able sell the business at will.
  C. The individual wanted the business to be a separate entity from the sole proprietor.
  D. The individual wanted the business to continue indefinitely.
  B. The individual wanted to be able sell the business at will.

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  Choice "b" is correct. A sole proprietor is free to transfer or sell the business at will.

  Choice "a" is incorrect because a sole proprietor is personally liable for all obligations of the business.

  Choice "c" is incorrect. A sole proprietorship is not considered an entity separate from the sole proprietor.

  Choice "d" is incorrect because a sole proprietorship ends with the death of the sole proprietor.

• Question 248:

  Commercial paper:

  A. Has a maturity date greater than one year.
  B. Is generally sold only through investment banking dealers.
  C. Generally does not have an active secondary market.
  D. Has an interest rate lower than treasury bills.
  C. Generally does not have an active secondary market.

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  Choice "c" is correct. Although commercial paper has a secondary market available, it is generally not an active secondary market. Commercial paper is usually sold to the money markets by highly creditworthy companies.

  Choice "a" is incorrect. The maturity dates are generally less than 270 days.

  Choice "b" is incorrect. Commercial paper can be sold to the money markets through a variety of intermediaries including brokers, dealers, investment brokers, etc. It can also be sold direct from one company to another. Choice "d" is

  incorrect. The interest rate on commercial paper is below the prime rate, but generally above the Treasury bill rate.

• Question 249:

  James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is reviewing the following forecasted information for his division for next year.

  

  If the imputed interest charge is 15 percent and Webb wants to achieve a residual income target of $2 million, what will costs have to be in order to achieve the target?

  A. $10,800,000
  B. $23,620,000
  C. $25,150,000
  D. $25,690,000
  C. $25,150,000

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  Choice "c" is correct. $25,150,000 costs to achieve residual income target of $2 million.

  

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

• Question 250:

  Return on assets:

  A. Is a measure of profitability and indicates how much is left of each sales dollar to cover operating expenses and profit.
  B. Is a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.
  C. Measures the amount of operating income earned above the imputed cost of capital for the operating unit. If the measure is positive, returns exceed the cost of financing the operating unit.
  D. Measures asset activity and the ability of the firm to generate sales through the use of assets. Generally, the more sales dollars generated per dollar of assets used, the better the net income of an entity.
  B. Is a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

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  Choice "b" is correct. Return on assets is a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

  Choice "a" is incorrect. This option defines gross profit margin.

  Choice "c" is incorrect. This option defines residual income.

  Choice "d" is incorrect. This option defines total asset turnover.