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

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

• Question 261:

  An organization would usually offer credit terms of 2/10, net 30 when:

  A. The organization can borrow funds at a rate less than the annual interest cost.
  B. The cost of capital approaches the prime rate.
  C. Most competitors are not offering discounts, and the organization has a surplus of cash.
  D. Most competitors are offering the same terms, and the organization has a shortage of cash.
  D. Most competitors are offering the same terms, and the organization has a shortage of cash.

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  Choice "d" is correct. Offering favorable credit terms is usually a response to either competitive forces in the market or to improve cash flow. Choice "a" is incorrect, although the payment terms of AR is a form of borrowing (or lending) to

  customers, companies are more likely to extend credit terms because of competitive pressures rather than because it represents a cheaper form of borrowing.

  Choice "b" is incorrect. The cost of capital at (or approaching) the prime rate is irrelevant without additional information.

  Choice "c" is incorrect. If most competitors are not offering discounts or credit terms, there is no reason to offer them. Also, if there is a surplus of cash, there is no reason to accelerate accounts receivable collection by offering credit terms.

• Question 262:

  If demand is price elastic:

  A. An increase in price will result in a decline in total revenue.
  B. An increase in price will result in a decline the quantity demanded that is less than the increase in price.
  C. An increase in price will result in an increase in total revenue.
  D. An increase in price will have no effect on total revenue.
  A. An increase in price will result in a decline in total revenue.

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  Choice "a" is correct. If demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship). Choice "b" is incorrect. When demand is price elastic, an increase in price results in a decline in quantity

  demanded that is proportionately larger than the increase in price, thus having the result of a decline in total revenue (price multiplied by quantity).

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

• Question 263:

  Which of the following is not a typical characteristic of a just-in-time (JIT) production environment?

  A. Lot sizes equal to one.
  B. Insignificant setup times and costs.
  C. Push-through system.
  D. Balanced and level workloads.
  C. Push-through system.

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  Choice "c" is correct. Just-in-time has the goal to minimize the level of inventory carried. Typical characteristics include lot sizes equal to one, insignificant set-up times and costs, and balanced and level workloads. In a just-in-time

  environment, the flow of goods is controlled by a "pull" approach, where an item is produced only when it is needed down the line, and not a "push-through" system.

  Choices "a", "b", and "d" are incorrect based on the above Explanation.

• Question 264:

  Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Lark's interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission to the partnership, Ward:

  A. Acquired only the right to receive Ward's share of DSJ profits.
  B. Has the right to participate in DSJ's management.
  C. Is personally liable for partnership liabilities arising before and after being admitted as a partner.
  D. Must contribute cash or property to DSJ to be admitted with the same rights as the other partners.
  B. Has the right to participate in DSJ's management.

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  Choice "b" is correct. The general rule is that the mere assignment of a partner's interest does not make the assignee a partner. One may become a partner only with the consent of all other partners. Here, all other partner's consented to

  Ward's becoming a partner. Thus, Ward is a partner with full rights to participate in management.

  Choice "a" is incorrect. The general rule is that the mere assignment of a partner's interest does not make the assignee a partner. One may become a partner only with the consent of all other partners.

  Here, all other partner's consented to Ward's becoming a partner. Thus, Ward is a partner with full partner rights.

  Choice "c" is incorrect. An incoming partner is not liable for debts that the partnership incurred before admission beyond the incoming partner's contribution, but is fully liable for debts incurred after becoming a partner. Choice "d" is incorrect.

  A partnership is a consensual relationship; there is no requirement of a contribution to become a partner.

• Question 265:

  The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,000. Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40 percent.

  What is the net cash flow for the tenth year of the project that Moore Corporation should use in a capital budgeting analysis?

  A. $81,000
  B. $68,400
  C. $63,000
  D. $60,000
  C. $63,000

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  Choice "c" is correct. $63,000 net cash flow for the tenth year.

  

  Alternate Computation:

  In year 10, Moore will generate a $100,000 profit from the incremental sales (2000 units ?($500 - $450)). This profit will be taxed at 40%, so the net after-tax increase in cash flow is $60,000. The machine is fully depreciated in year 10 because it was depreciated over a 5-year life. The tax basis of the machine is zero on the date Moore receives a $5,000 salvage value for the machine. The gain on the machine of $5,000 ($5,000 SV - $0 Basis) is taxed at 40%, or $2,000 in total tax outflow for the gain, so the net inflows on the salvage is $3,000. Therefore, the total after-tax cash flows in year 10 for the new machine is $60,000 + $3,000 = $63,000.

• Question 266:

  In 1990, Amber Corp., a closely held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock. Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held. For this question refer to the formation of Amber Corp. and the rights and duties of its stockholders, directors, and officers. Amber Corp.'s directors are elected by its:

  A. Officers.
  B. Outgoing directors.
  C. Stockholders.
  C. Stockholders.

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  Choice "c" is correct. Directors are elected by the stockholders.

• Question 267:

  When does competition not become an even stronger force impacting the profitability of a firm?

  A. The market consists of several equal-sized firms.
  B. Customers do not have strong brand preferences.
  C. The market is fast-growing.
  D. The costs of exiting the market exceed the costs of continuing to operate.
  C. The market is fast-growing.

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  Choice "c" is correct, as it is not a factor that would cause market competitiveness to be even stronger.

  Choices "a", "b", and "d" are incorrect because they are all reasons that competition becomes an even stronger force that impacts the firm's profitability. The following are situations that would cause competition to be an even stronger force

  impacting the profitability of a firm:

  ?The market is not growing fast.

  ?There are several equal-sized firms in the market.

  ?Customers do not have strong brand preferences.

  ?The costs of exiting the market exceed the costs of continuing to operate.

  ?Some firms profit from making certain moves to increase market share.

  ?The various firms in the market use different types of strategic plans.

• Question 268:

  In 1990, Amber Corp., a closely held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock. Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held. For this question refer to the formation of Amber Corp. and the rights and duties of its stockholders, directors, and officers. Amber Corp.'s officers ordinarily would be elected by its:

  A. Stockholders.
  B. Directors.
  C. Outgoing officers.
  B. Directors.

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  Choice "b" is correct. Officers usually are selected by the directors.

• Question 269:

  Listed below is selected financial information for the Western Division of the Hinzel Company for last year.

  

  If Hinzel treats the Western Division as an investment center for performance measurement purposes, what is the before-tax return on investment for last year?

  A. 26.76 percent.
  B. 22.54 percent.
  C. 19.79 percent.
  D. 16.67 percent.
  D. 16.67 percent.

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  Choice "d" is correct. 16.67% return on investment.

  

• Question 270:

  Which of the following is not correct about the purchasing power parity theory of explaining changes in exchange rates?

  A. Purchasing power of a common currency in different economies for similar products will remain the same.
  B. Inflationary forces on foreign and domestic currencies will cause the exchange rates to automatically adjust to ensure that a common currency will have identical or similar purchasing power in each economy for similar goods.
  C. Interest rates include a premium or discount that ensures purchasing power parity.
  D. The purchasing power parity theory is presented in both absolute and relative form.
  C. Interest rates include a premium or discount that ensures purchasing power parity.

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  Choice "c" is correct. The purchasing power parity theory holds that inflation will cause exchange rates to automatically adjust to ensure that an equal amount of a common currency will purchase similar goods in separate economies. The

  International Fischer effect considers the premium or discount on interest rates as an indicator of inflation.

  Choice "a" is incorrect. The basic idea underlying the purchasing power parity theory is that the purchasing power of a common currency in different economies for similar products will remain the same and that inflation in any particular

  economy will cause exchange rates to adjust until parity is consistently achieved.

  Choice "b" is incorrect. The purchasing power parity theory holds that inflationary forces on foreign and domestic currencies will cause the exchange rates to automatically adjust to ensure that a common currency will have identical or similar

  purchasing power in each economy for similar goods.

  Choice "d" is incorrect. The purchasing power parity theory is presented as both an absolute theory of parity determination regardless of market imperfections and as a relative concept that considers market imperfections.