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

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

• Question 331:

  Spotech Co.'s budgeted sales and budgeted cost of sales for the coming year are $212,000,000 and $132,500,000 respectively. Short-term interest rates are expected to average 5 percent. If Spotech could increase inventory turnover from its current 8 times per year to 10 times per year, its expected cost savings in the current year would be:

  A. $165,625
  B. $331,250
  C. $81,812
  D. $250,000
  A. $165,625

  ---

  Choice "a" is correct. $165,625 expected cost savings by increasing inventory turnover from its current 8 times to 10 times per year.

  

• Question 332:

  Pole Co. is investing in a machine with a 3-year life. The machine is expected to reduce annual cash operating costs by $30,000 in each of the first 2 years and by $20,000 in year 3. Present values of an annuity of $1 at 14% are: Using a 14% cost of capital, what is the present value of these future savings?

  

  A. $59,600
  B. $60,800
  C. $62,900
  D. $69,500
  C. $62,900

  ---

  Choice "c" is correct. The facts of the question provide annuity factors, yet the question only provides one "annuity" - the $30,000 for the first two years. Therefore, to calculate the present value of the savings for years 1 and 2, the factor for the present value of an annuity of $1 for two periods (1.65) is used. To calculate the present value of the savings for year 3, the factor for the lump sum of a present value of $1 for three periods is required; however, it is not directly provided. The factor must be calculated as the difference between the factors for the present value of an annuity of $1 for three periods (2.32) and for two periods (1.65), or .67.

  

  Review your knowledge of how the annuity and lump sum factors work together, as follows:

  

• Question 333:

  Quantree Company is quoted credit terms of 3/15, net 60 (using a 360-day year). The effective cost of not taking this discount and paying on day 60 is (rounded to nearest hundredth):

  A. 24.74 percent.
  B. 24.00 percent.
  C. 18.56 percent.
  D. 18.00 percent.
  A. 24.74 percent.

  ---

  Choice "a" is correct. The formula for computing the cost of credit discounts is: Choices "b", "c", and "d" are incorrect, per the above calculation.

  

• Question 334:

  Williams, Inc. is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described below, the company can sell unlimited amounts of all instruments.

  A. 7.0 percent.
  B. 7.6 percent.
  C. 7.4 percent.
  D. 7.8 percent.

  B. 7.6 percent.

  ---

  Choice "b" is correct. 7.6%. Williams would receive $92 per share ($100 less $5 flotation cost and $3 underpricing) and pay an annual dividend of $7/share. The annual cost is:

  

  This question purely asks the cost of new common shares issued. The problem gives you the expected dividend to be paid annually ($7) and the net proceeds after issue costs and market adjustments $92 (current selling price of $100 minus

  the $3 market adjustment and the $5 floatation costs). The cost of common shares issued is the finance charge (dividend) divided by the net proceeds of the issue $92 or 7.6%.

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

• Question 335:

  In competitive markets, an increase in an effective minimum wage will:

  A. Have a neutral effect on the demand for labor.
  B. Decrease the supply of labor.
  C. Decrease unemployment.
  D. Increase unemployment.
  D. Increase unemployment.

  ---

  Choice "d" is correct. When the "minimum" wages are increased, employers may elect to hire fewer employees thereby increasing unemployment.

  Choice "a" is incorrect. An increase in the minimum wage will have an effect on the demand for labor.

  Choice "b" is incorrect. The supply of labor will likely go up as the wage being paid increases.

  Choice "c" is incorrect. As the minimum wage increases, unemployment will increase.

• Question 336:

  Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Trent will generally be able to collect the judgment from:

  A. Partnership assets only.
  B. The personal assets of Eller, Fort, and Owens only.
  C. Eller's personal assets only after partnership assets are exhausted.
  D. Eller's personal assets only.
  C. Eller's personal assets only after partnership assets are exhausted.

  ---

  Choice "c" is correct. When a judgment is obtained against both a partnership and an individual general partner, the plaintiff must proceed against the partnership assets first and then the assets of any individual general partner. The

  partnership assets must be exhausted before any general partner's individual assets can be attached.

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

• Question 337:

  The determination of gross domestic product (GDP) by the expenditure approach would include:

  A. Net exports.
  B. Business profits.
  C. Compensation to employees.
  D. A capital consumption allowance.
  A. Net exports.

  ---

  Choice "a" is correct. The expenditure approach to computing GDP includes: Consumption Net exports Government expenditures Capital investment Choices "b", "c", and "d" are incorrect, per the above.

• Question 338:

  Considering the SCOR Model of supply chain operations, which of the following key management processes does assessing the ability of the suppliers to supply resources fall into?

  A. Plan.
  B. Source.
  C. Make.
  D. Deliver.
  A. Plan.

  ---

  Choice "a" is correct. The process of planning consists of developing a way to properly balance aggregate demand and aggregate supply within the goals and objectives of the firm and plan for the necessary infrastructure. Assessing the

  ability of the suppliers to supply resources is part of the "plan" process.

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

• Question 339:

  With respect to price elasticity of demand:

  A. The shorter the time period, the more product demand becomes elastic because less choices are available.
  B. Product demand is more elastic when fewer substitutes are available.
  C. Product demand is more inelastic when more substitutes are available.
  D. Product demand is more elastic when more substitutes are available.
  D. Product demand is more elastic when more substitutes are available.

  ---

  Choice "d" is correct. Product demand is more elastic when more substitutes are available.

  Choice "a" is incorrect. The longer the time period, the more product demand becomes elastic because more choices are available.

  Choice "b" is incorrect. Product demand is more elastic when more substitutes are available, not fewer substitutes.

  Choice "c" is incorrect. Product demand is more inelastic when few substitutes are available.

• Question 340:

  Kore Industries is analyzing a capital investment proposal for new equipment to produce a product over the next eight years. The analyst is attempting to determine the appropriate "end-of-life" cash flows for the analysis. At the end of eight years, the equipment must be removed from the plant and will have a net book value of zero, a tax basis of $75,000, a cost to remove of $40,000, and scrap salvage value of $10,000. Kore's effective tax rate is 40 percent. What is the appropriate "end-of-life" cash flow related to these items that should be used in the analysis?

  A. $27,000
  B. $12,000
  C. $(18,000)
  D. $(30,000)
  B. $12,000

  ---

  Choice "b" is correct. $12,000 "end-of-life" cash flow.

  The $75,000 loss on disposal is a non-cash reduction in taxable income that will reduce taxes paid by $30,000 (75,000 ?40%).

  The cost to remove the equipment is a cash expense that will reduce taxable income by $40,000 and reduce taxes paid by $16,000 (40,000 ?40%), resulting in a net cash expense of $24,000 ($40,000 minus $16,000, or $40,000 ?60%).

  The $10,000 salvage value will increase after-tax cash flow by $6,000 (10,000 ?60%).

  

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