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

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

• Question 371:

  Product demands become more elastic the:

  A. Greater the number of substitute products available.
  B. Greater the consumer income.
  C. Greater the elasticity of supply.
  D. Shorter the time period considered.
  A. Greater the number of substitute products available.

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  Choice "a" is correct. Product demands become more elastic the greater the number of substitutes available. With price increases, consumers will switch to substitute goods.

  Choice "b" is incorrect. Consumer income will not affect demand elasticity.

  Choice "c" is incorrect. Elasticity of supply and demand is unrelated.

  Choice "d" is incorrect. Product demand is more elastic the longer the time period, since more choices become available.

• Question 372:

  An advantage of the net present value method over the internal rate of return model in discounted cash flow analysis is that the net present value method:

  A. Computes a desired rate of return for capital projects.
  B. Can be used when there is no constant rate of return required for each year of the project.
  C. Uses a discount rate that equates the discounted cash inflows with the outflows.
  D. Uses discounted cash flows whereas the internal rate of return model does not.
  B. Can be used when there is no constant rate of return required for each year of the project.

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  Choice "b" is correct. When using the net present value method of capital budgeting, different hurdle rates can be used for each year of the project.

  Choice "a" is incorrect. The desired rate of return for capital projects is established by management.

  Choice "c" is incorrect. The internal rate of return determines the discount rate that will equate the discounted cash inflows with the outflows, thus resulting in no gain or loss (breakeven). Choice "d" is incorrect. Both the net present value

  method and the internal rate of return model are discounted cash flow methods.

• Question 373:

  The marketable securities with the least amount of default risk are:

  A. Federal government agency securities.
  B. U.S. treasury securities.
  C. Repurchase agreements.
  D. Bankers' acceptances.
  B. U.S. treasury securities.

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  Choice "b" is correct. Default risk is the risk that the security will not be repaid because the issuing entity is insolvent or illiquid. U.S. Treasury securities are issued by the Treasury Department, which has virtually no risk of being insolvent or

  illiquid.

  Choice "a" is incorrect. Securities issued by certain federal government agencies carry slightly more default risk than U.S. treasuries because these agencies are (usually) not as large or liquid as the U.S. Treasury. Choice "c" is incorrect.

  Repurchase agreements are sales by dealers in government securities who agree to repurchase these securities at a specific time and price. The risk of default is high because it is based upon the ability of the dealer to repurchase the

  securities.

  Choice "d" is incorrect. Bankers' acceptances are drafts drawn on a bank, which guarantees payment at maturity. The default risk is higher because the execution of the acceptance is based upon the solvency of the bank.

• Question 374:

  Barker Inc. has no capital rationing constraint and is analyzing many independent investment alternatives. Barker should accept all investment proposals:

  A. If debt financing is available for them.
  B. That have positive cash flows.
  C. That provide returns greater than the after-tax cost of debt.
  D. That have a positive net present value.
  D. That have a positive net present value.

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  Choice "d" is correct. Accept all investment alternatives that have a positive net present value (NPV). A positive NPV means the return on the investment exceeds the hurdle rate (the minimum acceptable rate of return).

  Choice "a" is incorrect. The cost of debt financing is a factor in determining the hurdle rate.

  Choice "b" is incorrect. The cash flow may be positive but the return on investment may be unacceptable.

  Choice "c" is incorrect. The cost of debt financing is a factor in determining the hurdle rate.

• Question 375:

  Which of the following statements is correct with respect to a limited partnership?

  A. A limited partner may not be an unsecured creditor of the limited partnership.
  B. A general partner may not also be a limited partner at the same time.
  C. A general partner may be a secured creditor of the limited partnership.
  D. A limited partnership can be formed with limited liability for all partners.
  C. A general partner may be a secured creditor of the limited partnership.

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  Choice "c" is correct. In a limited partnership, a general partner may be a secured creditor of the limited partnership.

  Choice "a" is incorrect. In a limited partnership, a limited partner may be an unsecured creditor of the limited partnership.

  Choice "b" is incorrect. In a limited partnership, a general partner may also be a limited partner at the same time.

  Choice "d" is incorrect. In a limited partnership, only the limited partners will have limited liability. A limited partnership must have at least one general partner and general partners have unlimited liability.

  (The word "all" makes this option wrong.)

• Question 376:

  Under which one of the following conditions is the internal rate of return method less reliable than the net present value technique?

  A. When the net present value of the project is equal to zero.
  B. When income taxes are considered in the analysis.
  C. When both benefits and costs are included, but each is separately discounted to the present.
  D. When there are several alternating periods of net cash inflows and net cash outflows.
  D. When there are several alternating periods of net cash inflows and net cash outflows.

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  Choice "d" is correct. The internal rate of return (IRR) method is less reliable than the net present value (NPV) technique when there are several alternating periods of net cash inflows and net cash outflows or the amounts of cash flows differ

  significantly. The IRR is strictly a percentage measure of return, while the NPV is an absolute measure. Due to this difference, the timing or amount of cash flows under IRR can be misleading when compared to the NPV method.

  Example: If an investment of $50 earns $100. Then, 100/50 = 200% return

  If an investment of $50,000 earns $25,000 then, 25,000/50,000 = 50% return

  IRR suggests it is best to invest $50 to earn $100 and a 200% return while the NPV method will indicate a larger NPV for the $50,000 investment.

  Choices "a", "b", and "c" are incorrect. These conditions do not make the IRR method less reliable than the NPV method.

• Question 377:

  Under monopoly, strategic plans focus on:

  A. Profitability from production levels that maximize profits.
  B. Maintaining the market share and being responsive to market conditions related to sales price.
  C. Maintaining the market share and planning for enhanced product differentiation.
  D. Maintaining the market share, ensuring product differentiation, and adapting to price changes or required changes in production volume.
  A. Profitability from production levels that maximize profits.

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  Choice "a" is correct. Under monopoly, strategic plans ignore market share and focus on profitability from production levels that will maximize profits. Choices "b", "c", and "d" are incorrect because they are characteristics of other types of market structures.

• Question 378:

  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 among the owners, who controls the management of the HES LLC?

  A. Heather, because she works the most.
  B. Erika and Shelby equally because they contributed the most.
  C. Heather, Erika, and Shelby in proportion to their ownership interests.
  D. Erika and Shelby, because they originate most of the work.
  C. Heather, Erika, and Shelby in proportion to their ownership interests.

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  Choice "c" is correct.

  Rule: Absent an agreement to the contrary, the members' voting strength is proportionate to their contributions.

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

• Question 379:

  The continual process of re-evaluating the strategic plans includes all of the following significant questions a firm should be concerned with, except:

  A. Has the firm been able to attain or maintain competitive advantage?
  B. Is the firm able to be profitable under the current strategy?
  C. Does the current strategy continue to be aligned with the established goals of the firm?
  D. Has the firm been able to adapt to the preferences of its employees?
  D. Has the firm been able to adapt to the preferences of its employees?

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  Choice "d" is correct. Although the firm needs to be flexible with respect to changes in many situations and then adapt to them, the ability to adapt to the preferences of its employees is not nearly as significant to the process as the other three

  choices, which are crucial to the success of the strategic plan.

  Choices "a", "b", and "c" are incorrect because they are all significant questions a firm should be concerned with when re-evaluating the strategic plan.

• Question 380:

  A limited partnership must have:

  A. One general partner and two limited partners.
  B. All must be general partners and one limited partner.
  C. One general partner and one limited partner.
  D. All limited partners.
  C. One general partner and one limited partner.

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  Choice "c" is correct.

  Rule: A limited partnership must have at least one general partner and one limited partner.

  Choices "a", "b", and "d" are incorrect, per the above rule. Be careful of answers that include the word "all."