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

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

• Question 281:

  A period during which real GDP is rising and unemployment is falling is called a(n):

  A. Recession.
  B. Peak.
  C. Expansion.
  D. Trough.
  A. Recession.

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  Choice "c" is correct. During an expansion, real GDP is rising and unemployment is falling.

  Choice "a" is incorrect. A recession is when real GDP is falling NOT rising.

  Choice "b" is incorrect. A peak is the highest point of economic activity. It is the point where real GDP is at its highest level in the cycle and unemployment is at its lowest level in the cycle. Choice "d" is incorrect. A trough is the lowest level of

  economic activity. It is the point where real GDP is at its lowest level in the cycle and unemployment is at its highest level in the cycle.

• Question 282:

  Which one of the following statements pertaining to the return on investment (ROI) as a performance measurement is incorrect?

  A. When the average age of assets differs substantially across segments of a business, the use of ROI may not be appropriate.
  B. ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation.
  C. The use of ROI may lead managers to reject capital investment projects that can be justified by using discounted cash flow models.
  D. The use of ROI can make it undesirable for a skillful manager to take on trouble-shooting assignments such as those involving turning around unprofitable divisions.
  B. ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation.

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  Choice "b" is correct. ROI is no more and no less capable of being independently verified or manipulated than other performance measure. Choice "a" is incorrect. Old fixed assets may be undervalued and make comparison with a segment

  with newer assets inappropriate.

  Choice "c" is incorrect. Investment projects with positive present value may be rejected because ROI is too low.

  Choice "d" is incorrect. Turning around an unprofitable division would be good for the company but would probably lower a manager's ROI.

• Question 283:

  By using the discounted cash flow model, estimate the cost of equity capital for a firm with a stock price of $30.00, an estimated dividend at the end of the first year of $3.00 per share, and an expected growth rate of 10 percent.

  A. 21.1 percent.
  B. 12.2 percent.
  C. 11.0 percent.
  D. 20.0 percent.
  D. 20.0 percent.

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  Choice "d" is correct. 20.0 percent cost of equity capital by using the discounted cash flow model.

• Question 284:

  As a company becomes more conservative in its working capital policy, it would tend to have a (n):

  A. Decrease in its acid-test ratio.
  B. Increase in the ratio of current assets to units of output.
  C. Increase in funds invested in common stock and a decrease in funds invested in marketable securities.
  D. Decrease in its level of permanent working capital.
  B. Increase in the ratio of current assets to units of output.

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  Choice "b" is correct. As a company becomes more conservative in its working capital policy, it would tend to have an increase in the ratio of current assets to units of output.

  Choice "a" is incorrect. Acid-test ratio would tend to increase with conservatism.

  Choice "c" is incorrect. Marketable securities investments would tend to increase while common stock investments would tend to decrease.

  Choice "d" is incorrect. Permanent working capital would tend to increase.

• Question 285:

  A firm has daily cash receipts of $100,000. A bank has offered to reduce the collection time on the firm's deposits by two days for a monthly fee of $500. If money market rates are expected to average 6 percent during the year, the net annual benefit (loss) from having this service is:

  A. $3,000
  B. $12,000
  C. $6,000
  D. $(6,000)
  C. $6,000

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  Choice "c" is correct. $6,000 net annual benefit from using a lockbox system.

  

• Question 286:

  All of the following are components of the formula used to calculate gross domestic product, except:

  A. Household income.
  B. Foreign net export spending.
  C. Government spending.
  D. Gross investment.
  A. Household income.

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  Choice "a" is correct. Gross domestic product (GDP) is calculated in two different ways. The first, which is the expenditure approach and can be used to answer this question, is the mnemonic GICE, or government purchases plus private

  domestic investment plus personal consumption expenditures plus net exports. Household income is the only one of the answers that is not included in this mnemonic. Choice "b" is incorrect. Foreign net export spending is included in the

  mnemonic (E) for GDP; although, it is called simply net exports in the mnemonic and not foreign net export spending.

  Choice "c" is incorrect. Government spending is included in the mnemonic (G) for GDP.

  Choice "d" is incorrect. Gross investment is included in the mnemonic (I) for GDP, although it is called private domestic investment in the mnemonic.

• Question 287:

  Which one of a firm's sources of new capital usually has the lowest after tax cost?

  A. Retained earnings.
  B. Bonds.
  C. Preferred stock.
  D. Common stock.
  B. Bonds.

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  Choice "b" is correct. Because debt is a cheaper source of financing than equity, bonds will be the cheapest form of financing. In addition, the company issuing bonds receives a tax deduction for interest paid. This further reduces the cost of

  bond financing.

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

• Question 288:

  Carr Corp. declared a 7% stock dividend on its common stock. The dividend:

  A. Must be registered with the SEC pursuant to the Securities Act of 1933.
  B. Is includable in the gross income of the recipient taxpayers in the year of receipt.
  C. Has no effect on Carr's earnings and profits for federal income tax purposes.
  D. Requires a vote of Carr's stockholders.
  C. Has no effect on Carr's earnings and profits for federal income tax purposes.

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  Choice "c" is correct. A stock dividend means that the corporation issues its existing shareholders more stock. In essence, the corporation is merely diluting the proportional ownership interest of existing shares. This has no effect on the

  corporation's earnings and profits for federal income tax purposes.

  Choice "a" is incorrect. There is no requirement that stock dividends be registered with the SEC because no "sale" is involved. Choice "b" is incorrect. The receipt of a stock dividend is not the recognition of income. It merely divides the

  stockholders' current ownership interests into more pieces; it does not increase proportional ownership interest in the corporation. Choice "d" is incorrect. The issuance of dividends, including stock dividends, is at the directors' discretion;

  shareholders do not vote on dividends.

• Question 289:

  In a competitive labor market, a minimum wage that is set above the equilibrium wage will result in which of the following:

  A. A decrease in the quantity demanded of labor.
  B. An increase in the quantity supplied of labor.
  C. A decrease in total employment.
  D. All of the above.
  D. All of the above.

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  Choice "d" is correct. As illustrated in the graph, a minimum wage that is set above the equilibrium wage results in a decrease in the quantity demanded of labor (falls to LD), an increase in the quantity supplied of labor (increases to LS), and a decrease in total employment (total employment falls from L* to LD).

  

  Choices "a", "b", and "c" are incorrect. All are true, making choice "d" the only right answer.

• Question 290:

  In planning and controlling capital expenditures, the most logical sequence is to begin with:

  A. Analyzing capital addition proposals.
  B. Analyzing and evaluating all promising alternatives.
  C. Identifying capital addition projects and other capital needs.
  D. Developing capital budgets.
  C. Identifying capital addition projects and other capital needs.

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  Choice "c" is correct. The most logical sequence in planning and controlling capital expenditures is to begin with identifying capital addition projects and other capital needs.

  Choice "a" is incorrect. Analyzing capital addition proposals omits other capital needs.

  Choice "b" is incorrect. Analyzing and evaluating all promising alternatives is beyond the scope of planning and controlling capital expenditures.

  Choice "d" is incorrect. Developing capital budgets is the same as planning and controlling capital expenditures.