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

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

• Question 391:

  Unless prohibited by the organization documents, a stockholder in a publicly held corporation and the owner of a limited partnership interest both have the right to:

  A. Ownership of the business' assets.
  B. Control management of the business.
  C. Assign their interest in the business.
  D. An investment that has perpetual life.
  C. Assign their interest in the business.

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  Choice "c" is correct. Both a shareholder in a publicly held corporation and the owner of a limited partnership interest have a right to assign (sell) their interest. While a shareholder is free to assign his whole ownership interest, a limited

  partner's assignable interest is limited to the limited partner's interest in profits and losses.

  Choice "a" is incorrect. Neither the stockholder of a publicly held corporation nor the owner of a limited partnership interest (or indeed, even a general partnership interest) has an ownership interest in any item of the business' assets--the

  assets belong to the business and not to the owners of the business.

  Choice "b" is incorrect. Stockholders and limited partners generally do not have the right to participate in the management of the business. Choice "d" is incorrect. A limited partnership interest dissolves upon death of the limited partner and so

  is not a perpetual investment.

• Question 392:

  Hedgehog International has a receivable valued at 500,000 local currency units from its foreign customer due in 90 days. The current spot rate of the local currency unit is $.60. Hedgehog purchases a put option to sell the local currency unit in

  90 days for $.61 for a premium of $.005. The exchange rate for the local currency increases to $.63 in 90 days. What will Hedgehog do on the receivable's settlement date?

  A. Hedgehog will exercise its option and sell the proceeds of its accounts receivable collection under the provisions of the option contract at a gain.
  B. Hedgehog will not exercise the option and sell local currency units collected from its receivable at the spot rate.
  C. Hedgehog will be indifferent as to whether it exercises the option or not.
  D. Hedgehog will sell the option at the settlement date and combine its proceeds along with local currency units purchased at the spot rate to maximize its revenue.
  B. Hedgehog will not exercise the option and sell local currency units collected from its receivable at the spot rate.

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  Choice "b" is correct. Hedgehog will not exercise its option and will, instead convert the local currency units collected from the receivables to its domestic currency by selling that currency at the spot rate at the time of collection. The exercise of the option represents a less profitable alternative than sale of the accounts receivable proceeds at the spot rate at the time the receivables are collected. The exercise of the option in comparison to allowing the option to expire is computed as follows:

  

  The premium is a sunk cost and is irrelevant to the Explanation. Note that the premium is a factor in determining the net gain (loss) but not in deciding whether to exercise option. Choices "a", "c", and "d" are incorrect, per computation above.

• Question 393:

  If a firm increases its cash balance by issuing additional shares of common stock, working capital:

  A. Remains unchanged and the current ratio remains unchanged.
  B. Increases and the current ratio remains unchanged.
  C. Increases and the current ratio decreases.
  D. Increases and the current ratio increases.
  D. Increases and the current ratio increases.

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  Choice "d" is correct. If a firm increases its cash balance by issuing additional shares of common stock, working capital increases and the current ratio increases.

  

• Question 394:

  In a decision analysis situation, which one of the following costs is generally not relevant to the decision?

  A. Incremental cost.
  B. Avoidable cost.
  C. Historical cost.
  D. Opportunity cost.
  C. Historical cost.

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  Choice "c" is correct. Historical cost is generally not relevant in a decision analysis situation. All of the following costs are relevant in a decision analysis situation:

  A. Incremental cost

  B. Avoidable cost

  D. Opportunity cost

• Question 395:

  For capital budgeting purposes, management would select a high hurdle rate of return for certain projects because management:

  A. Wants to use equity funding exclusively.
  B. Believes bank loans are riskier than capital investments.
  C. Believes capital investment proposals involve average risk.
  D. Wants to factor risk into its consideration of projects.
  D. Wants to factor risk into its consideration of projects.

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  Choice "d" is correct. Management would select a high hurdle rate for certain projects to factor risk into its consideration of projects. The higher hurdle rate discounts future cash flows more, creating a smaller present value. By "devaluing" the

  cash flows of certain projects, risk has been compensated for.

  Choices "a" and "b" are incorrect. The method and cost of funding are independent of the hurdle rate for screening investments.

  Choice "c" is incorrect. If capital investment proposals involve average risk, no adjustment upward is needed for risk.

• Question 396:

  The key difference between strategic goals and tactical goals is that tactical goals are:

  A. Usually attainable.
  B. Developed by top management.
  C. Concerned with issues other than profit.
  D. Short-term in nature.
  D. Short-term in nature.

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  Choice "d" is correct. Tactical goals are the means for attaining strategic goals and are short-term in nature. Strategic goals are overall objectives and relatively long-term.

  Choice "a" is incorrect. Both strategic and tactical goals are usually attainable.

  Choice "b" is incorrect. Development of all goals are best accomplished with the involvement of employees at all levels.

  Choice "c" is incorrect. Tactical goals are the means for achieving strategic goals. Both are concerned with profit and other issues.

• Question 397:

  Considering the SCOR Model of supply chain operations, which of the following key management processes does managing accounts receivable and collections from customers fall into?

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

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  Choice "d" is correct. The "deliver" process encompasses all the activities of getting the finished product into the hands of the ultimate consumers to meet their planned demand. Managing accounts receivable and collections from customers

  falls into the "deliver" process.

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

• Question 398:

  The following information pertains to Quest Co.'s Gold Division for 1993:

  

  Quest's return on investment was:

  A. 10.00 percent.
  B. 13.33 percent.
  C. 27.50 percent.
  D. 30.00 percent.
  C. 27.50 percent.

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  Choice "c" is correct. Return on investment equals net income divided by average invested capital:

  

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

• Question 399:

  The net present value method of capital budgeting assumes that cash flows are reinvested at:

  A. The risk-free rate.
  B. The cost of debt.
  C. The rate of return of the project.
  D. The discount rate used in the analysis.
  D. The discount rate used in the analysis.

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  Choice "d" is correct. The net present value method of capital budgeting assumes that cash flows are reinvested at the discount rate used in the analysis. Choices "a", "b", and "c" are incorrect, per the above Explanation.

• Question 400:

  Which of the following statements regarding the existence of substitute products is correct?

  A. The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are difficult for customers to obtain.
  B. When the cost of buyers switching to new products is high, the effect of substitutes on the competitive environment of a firm is high.
  C. If few substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available.
  D. If few substitutes exist, buyers may have a limit on the maximum price that they are willing to pay and may choose to not purchase the firm's product if the price is too high.
  C. If few substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available.

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  Choice "c" is correct. If few substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available. Choice "a" is incorrect. The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are readily available to consumers (not difficult to obtain). Choice "b" is incorrect. When the cost of buyers switching to new products is low (not high), the effect of substitutes on the competitive environment of a firm is high. Choice "d" is incorrect. If many (not few) substitutes exist, buyers may have a limit on the maximum price that they are willing to pay and may choose to not purchase the firm's product if the price is too high.