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

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

• Question 341:

  Sylvan Corporation has the following capital structure:

  

  The financial leverage of Sylvan Corp. would increase as a result of:

  A. Issuing common stock and using the proceeds to retire preferred stock.
  B. Issuing common stock and using the proceeds to retire debenture bonds.
  C. Financing its future investments with a higher percentage of bonds.
  D. Financing its future investments with a higher percentage of equity funds.
  C. Financing its future investments with a higher percentage of bonds.

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  Choice "c" is correct. Financial leverage increases when the debt to equity ratio increases. Using a higher percentage of debt (bonds) for future investments would increase financial leverage.

  Choice "a" is incorrect. This results in no change in total equity and, consequently, no change in financial leverage.

  Choice "b" is incorrect. This would result in increased equity and decreased debt, which would decrease financial leverage.

  Choice "d" is incorrect. This would increase equity, decrease the debt to equity ratio and decrease financial leverage.

• Question 342:

  A multiperiod project has a positive net present value. Which of the following statements is correct regarding its required rate of return?

  A. Less than the company's weighted average cost of capital.
  B. Less than the project's internal rate of return.
  C. Greater than the company's weighted average cost of capital.
  D. Greater than the project's internal rate of return.
  B. Less than the project's internal rate of return.

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  Choice "b" is correct. The required rate of return must be less than the project's internal rate of return (IRR). The IRR is the rate earned by an investment that equates to a net present value (NPV) of zero. By definition, a project with a positive

  NPV will have an IRR greater than the required rate of return used to compute that NPV.

  Choice "a" is incorrect. Typically, a company will use its own weighted-average cost of capital (WACC) as the hurdle rate for computing net present value (NPV). A positive NPV would not likely give any indication of the relationship between

  required rate of return and WACC. The required rate of return and WACC are likely equal.

  Choice "c" is incorrect. Typically, a company will use its own weighted-average cost of capital (WACC) as the hurdle rate for computing net present value (NPV). A positive NPV would not likely give any indication of the relationship between

  required rate of return and WACC. The required rate of return and WACC are likely equal.

  Choice "d" is incorrect. The required rate of return must be less than the project's internal rate of return (IRR). The IRR is the rate earned by an investment that equates to a net present value (NPV) of zero. By definition, a project with a

  positive NPV will have an IRR greater than the required rate of return used to compute that NPV.

• Question 343:

  Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather has originated the other 10%. Absent an agreement to the contrary, how will the LLC's $120,000 profits be divided among the members?

  

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

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  Rule: Absent an agreement to the contrary, the LLC's profits will be divided among the members in proportion to their contributions. Here, Heather's, Erika's and Shelby's contributions were $30,000, $60,000, and $60,000, respectively. Thus,

  the profits will be divided in a 1:2:2 ratio (20% of $120,000 to Heather; 40% of $120,000 to Erika; and $120,000 to Shelby).

  Choice "d" is correct.

  Heather Erika Shelby

  D. $24,000 $48,000 $48,000

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

• Question 344:

  Which of the following would most likely cause real GDP to increase the most:

  A. A rise in interest rates and a rise in input costs.
  B. A fall in interest rates and a fall in input costs.
  C. A rise in wealth and a rise in interest rates.
  D. A rise in consumer confidence and a fall in government spending.
  B. A fall in interest rates and a fall in input costs.

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  Choice "b" is correct. A decline in interest rates would cause the aggregate demand curve to shift right, which increases real GDP. Similarly, a decline in input costs would cause the aggregate supply curve to shift right, which also increases

  real GDP.

  Choice "a" is incorrect. Both of these events would cause real GDP to decline.

  Choice "c" is incorrect. A rise in interest rates would cause real GDP to decline, not increase.

  Choice "d" is incorrect. A decline in government spending would cause real GDP to decline, not increase.

• Question 345:

  Suppose the equilibrium wage for low skilled workers in California is $6.00 an hour. If the government increases the minimum wage to $7.00 an hour, what would be the effect on the market for low skilled labor?

  A. An excess demand for labor would result.
  B. An excess supply of labor would result.
  C. The demand for labor would decrease.
  D. The supply of labor would increase.
  B. An excess supply of labor would result.

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  Choice "b" is correct. A minimum wage that is set above the equilibrium wage will result in an excess supply (or surplus) of labor.

  

  Choice "a" is incorrect, since the quantity demanded of labor at $7 is less than the quantity supplied, implying an excess supply not an excess demand. Choice "c" is incorrect. An increase in the minimum wage causes a decrease in quantity

  demanded of labor, not a decrease in the demand (shift in demand) for labor.

  Choice "d" is incorrect, per the above Explanation.

• Question 346:

  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 initial bylaws ordinarily would be adopted by its:

  A. Stockholders.
  B. Officers.
  C. Directors.
  C. Directors.

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  Choice "c" is correct. Bylaws usually are adopted by the initial directors.

• Question 347:

  Which of the following is incorrect with regard to value chain analysis?

  A. Value chain analysis must be used in conjunction with the strategic plan of the organization.
  B. Value chain analysis is critical to assessing the competitive advantage of a firm.
  C. Value chain analysis is a strategic tool that assists the firm in determining how important the perceived value of the buyers is with respect to the market the firm operates in.
  D. The value chain starts with the firm and goes all the way through to the end users of the product.
  D. The value chain starts with the firm and goes all the way through to the end users of the product.

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  Choice "d" is an incorrect statement and the correct choice. The best description of a value chain is that value starts with the suppliers who provide the raw materials for a production process, continues with the firm and its strategic plan,

  continues with the value created by the customers, and then ends with the disposal and recycling of the materials.

  Choices "a", "b", and "c" are incorrect, as all are correct statements with regard to value chain analysis.

• Question 348:

  Which of the following statements regarding competitive advantage is not true?

  A. The two major forms of competitive advantage are product differentiation and cost leadership.
  B. If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage.
  C. Cost leadership advantage may be the best be obtained by a firm when a firm builds market shares or matches the price of its rivals.
  D. Differentiation advantage may best be obtained by a firm when a firm builds market share or increases its price.
  B. If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage.

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  Choice "b" is the proper choice, as it is not a true statement. Simply because the manufacturing costs of a firm are less than those of close rivals, this does not necessarily mean that the firm has a competitive market advantage. Only if TOTAL

  costs to a firm are less than those of close rivals will a firm have a competitive market advantage.

  Choices "a", "c", and "d" are incorrect, as they are all true statements.

• Question 349:

  Doug was the sole general partner in Heavy Foot, Limited Partnership. While driving to work one morning, Doug died in a car accident. The limited partnership:

  A. Continues to exist as it was before Doug's death.
  B. Dissolves by operation of law as a result of Doug's death.
  C. Dissolves only by attaining a judicial decree.
  D. Converts to a general partnership and all former limited partners become general partners.
  B. Dissolves by operation of law as a result of Doug's death.

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  Choice "b" is correct.

  Rule: The death of a general partner will by operation of law, dissolve the limited partnership. Because the dissolution is by operation of law, there is no requirement to attain a judicial decree. Remaining limited partners do not automatically

  become general partners as a result of the death of the general partner.

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

• Question 350:

  Under the Uniform Partnership Act, which of the following statements is(are) correct regarding the effect of the assignment of an interest in a general partnership?

  I. The assignee is personally responsible for the assigning partner's share of past and future partnership debts.

  II.

  The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.

  A. I only.
  B. II only.
  C. Both I and II.
  D. Neither I nor II.
  I. The assignee is personally responsible for the assigning partner's share of past and future partnership debts. II. The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.
  B. II only.

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  Choice "b" is correct. A partner may assign his or her interest in the partnership. The effect of such an assignment is to transfer the partner's right to receive the partner's share of profits or surplus only. Such an assignment does not cause dissolution or make the assignee a new partner. The assignor is still regarded as a partner and is liable for past and future partnership debts. The assignee, since he is not a partner, is not liable for past and future partnership debts. Choice "a" is incorrect. The assignee of an interest in a general partnership is not personally responsible for the assigning partner's share of past and future partnership debts but is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership. Choice "c" is incorrect. The assignee of an interest in a general partnership is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership but is not personally responsible for the assigning partner's share of past and future partnership debts. Choice "d" is incorrect. The assignee of an interest in a general partnership is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership but is not personally responsible for the assigning partner's share of past and future partnership debts.