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

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

• Question 361:

  In general, which of the following statements is correct with respect to a limited partnership?

  A. A limited partner will be personally liable for partnership debts incurred in the ordinary course of the partnership's business.
  B. A limited partner is unable to participate in the management of the partnership in the same manner as general partners and still retain limited liability.
  C. A limited partner's death or incompetency will cause the partnership to dissolve.
  D. A limited partner is an agent of the partnership and has the authority to bind the partnership to contracts.
  B. A limited partner is unable to participate in the management of the partnership in the same manner as general partners and still retain limited liability.

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  Choice "b" is correct. While the general rule is that a limited partner has no liability on partnership debts except to the extent of his agreed-upon contribution, the limited partner will lose this limited liability if he takes part in control of the business, which generally means a limited partner may not manage the business on a day-to-day basis as a general partner could. Choice "a" is incorrect. Limited partners are not personally liable for partnership debts; their liability generally is limited to their contributions. Choice "c" is incorrect. Death or incapacity of a general partner will cause a dissolution, but the same is not true of a limited partner. Choice "d" is incorrect. A limited partner is more like a shareholder in a corporation than like a general partner. Limited partners are not agents of their partnerships and have no authority to bind their partnership on contracts.

• Question 362:

  Which one of the following would cause the demand curve for a commodity to shift to the left?

  A. A rise in the price of a substitute product.
  B. A rise in average household income.
  C. A rise in the price of a complementary commodity.
  D. A rise in the population.
  C. A rise in the price of a complementary commodity.

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  Choice "c" is correct. A rise in the price of a complementary commodity would cause a shift to the left in any demand curve (representing decrease in demand, at all price levels, for that product). With respect to complementary goods, the

  demand for the primary product is directly impacted by the demand (and hence the price changes) for the complementary goods. For instance, if the price of gasoline goes up, the demand for cars will decrease, causing the demand curve for

  cars to shift left.

  Choice "a" is incorrect. A rise in the price of a substitute product will make the demand curve shift to the right.

  Choice "b" is incorrect. A rise in average household income would make the demand curve shift to the right, representing an increase in demand. Choice "d" is incorrect. A rise in population, or a change in consumers' tastes in favor of the

  commodity are also changes that may cause an increase in demand, making the demand curve shift to the right.

• Question 363:

  All of the following capital budgeting analysis techniques use cash flows as the primary basis for the calculation, except for the:

  A. Net present value.
  B. Internal rate of return.
  C. Discounted payback period.
  D. Accounting rate of return.
  D. Accounting rate of return.

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  Choice "d" is correct. The accounting rate of return does not use cash flows as the primary basis for the calculation. It measures the accrual accounting return instead of cash flows:

  

  Choice "a" is incorrect. Net present value method discounts cash flows for an investment over its life to time period zero using a desired or minimum rate of return. Choice "b" is incorrect. Internal rate of return (IRR) determines the compound

  interest rate of an investment where the present value of the cash inflows equals the present value of the cash outflows. The IRR is the discount rate that results in a net present value of zero. Choice "c" is incorrect. The discounted payback period is the time period required for discounted cash inflows to equal the initial investment. The time value of money is considered.

• Question 364:

  A government price support program will:

  A. Lead to surpluses.
  B. Lead to shortages.
  C. Improve the rationing function of prices.
  D. Not influence the rationing function of prices.
  A. Lead to surpluses.

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  Choice "a" is correct. A government price support program acts as a subsidy that will encourage suppliers to increase supply beyond an equilibrium point (the point where supply and demand curves intersect). This excess of supply over

  demand will create surpluses in the market.

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

• Question 365:

  Which of the following is not a type of major strategic framework that has proven useful for value chain analysis?

  A. Core competencies analysis.
  B. Customer preference analysis.
  C. Industry structure analysis.
  D. Segmentation analysis.
  B. Customer preference analysis.

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  Choice "b" is correct. Customer preference analysis is not a major strategic framework that has been proven to be useful for value chain analysis. Choices "a", "c", and "d" are incorrect, as the three major types of strategic frameworks that have been proven to be useful for value chain analysis are industry structure analysis, core competencies analysis, and segmentation analysis.

• Question 366:

  The principle measure of non-diversifiable risk included in the CAPM formula is the beta coefficient. The beta coefficient measures the volatility or risk inherent in an investment by:

  A. Computing the ratio of changes in earnings per share to changes in sales.
  B. Computing the ratio of stock price to earnings per share.
  C. Computing the ratio of percentage changes in a stock's price to percentage changes in overall market values during the same period.
  D. Computing the ratio of percentage changes in the expected value of alpha equivalents to derivative fluctuations.
  C. Computing the ratio of percentage changes in a stock's price to percentage changes in overall market values during the same period.

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  Choice "c" is correct. The beta coefficient represents the measure of a particular stock's percentage change compared to the percentage change in the market over the same period. The equation for the beta coefficient is as follows:

  % in Stock Price

  % in Market price

  Choice "a" is incorrect. The percentage change in earnings per share related to a percentage change in sales represents the degree of combined leverage.

  Choice "b" is incorrect. The ratio of stock price to earnings per share is the price earnings ratio.

  Choice "d" is incorrect. Choice "d" represents a word salad distracter of nonsense terms.

• Question 367:

  Colt Inc. is planning to use retained earnings to finance anticipated capital expenditures. The beta coefficient for Colt's stock is 1.15, the risk-free rate of interest is 8.5 percent, and the market return is estimated at 12.4%. If a new issue of common stock was used in this model, the flotation costs would be 7%. By using the Capital Asset Pricing Model equation C = R + B (M - R), the cost of using retained earnings to finance the capital expenditures is:

  A. 13.96 percent.
  B. 12.99 percent.
  C. 14.26 percent.
  D. 13.21 percent.
  B. 12.99 percent.

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  Choice "b" is correct. The capital asset pricing model (CAPM) is:

  

• Question 368:

  The inflation rate measures:

  A. The rate at which nominal GDP increases.
  B. How the price of a particular good changes over time.
  C. How nominal interest rate changes over time.
  D. The rate at which the overall price level increases.
  D. The rate at which the overall price level increases.

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  Choice "d" is correct. The inflation rate measures the rate of increase in the overall price level in the economy.

  Choice "a" is incorrect. The inflation rate is associated with price level changes not changes in the nominal value of output.

  Choice "b" is incorrect. Inflation refers to a sustained increase in the overall price level. Not the price of a particular good.

  Choice "c" is incorrect. The inflation rate is associated with price level changes not interest rate changes.

• Question 369:

  Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:

  A. Is relatively elastic.
  B. Is perfectly elastic.
  C. Is relatively inelastic.
  D. Is perfectly inelastic.
  C. Is relatively inelastic.

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  Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity would only decrease if there were an enormous increase in price (people might

  then use other forms of energy - such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves.

  That is, no matter what price is charged, people will still buy the product because they need it to stay alive.

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

• Question 370:

  All of the following are alternative marketable securities suitable for investment, except:

  A. Eurodollars.
  B. Commercial paper.
  C. Bankers' acceptances.
  D. Convertible bonds.
  D. Convertible bonds.

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  Choice "d" is correct. Convertible bonds. Temporarily idle cash should be inverted in very liquid, low risk short-term investments only. U.S. T-bills are basically risk-free. Banker's acceptances and Eurodollars are only slightly more risky. Commercial paper, the short-term unsecured notes of the most credit-worthy large U.S. corporations is a little riskier, but still relatively low risk. However, convertible bonds are subject to default risk, liquidity risk, and maturity (interest rate) risk, and as such are inappropriate securities for short-term marketable security investment.