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

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

• Question 421:

  What is strategic planning?

  A. It establishes the general direction of the organization.
  B. It establishes the resources that the plan will require.
  C. It establishes the budget for the organization.
  D. It consists of decisions to use parts of the organization's resources in specified ways.
  A. It establishes the general direction of the organization.

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  Choice "a" is correct. Strategic planning is the creation of an overall strategic plan for an organization to achieve its overall "business objectives." The strategic plan will establish the general direction of the organization. Choice "b" is incorrect. Strategic planning will not establish the resources that the plan will require. The resources that the plan will require are part of the implementation of the strategic plan, not part of the plan itself. Choice "c" is incorrect. Strategic planning will not establish the budget for the organization. Budgets are even further down implementing the plan than are the resources that the plan will require. Choice "d" is incorrect. Strategic planning does not consist of decisions to use parts of the organization's resources in specified ways. Again, these decisions are part of the implementation of the strategic plan, not part of the plan itself.

• Question 422:

  Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?

  A. Financial risk.
  B. Business risk.
  C. Interest rate risk.
  D. Marginal risk.
  B. Business risk.

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  Choice "b" is correct. Business risk represents the risk associated with the unique circumstances of a particular company, as they might affect the shareholder value of that company. If an entity purely uses its own cumulative earnings in

  capitalizing its operations, it is exposed to the risks of its own unique circumstances.

  Choice "a" is incorrect. Financial risk, also called default risk, relates to the exposure of lenders to the failure of borrowers to repay principal and interest on debt. An entity using its own cumulative earnings in capitalizing its operations is not

  exposed to default risk.

  Choice "c" is incorrect. A business that exclusively uses equity capitalization would not be exposed to the risk that the value of its financial instruments will change as a result of changes in interest rates. Choice "d" is incorrect. Incremental

  changes in risk would be limited if a firm exclusively used its own equity financing to capitalize its operations.

• Question 423:

  MFC Corporation has 100,000 shares of stock outstanding. Below is part of MFC's Statement of Financial Position for the last fiscal year.

  

  What is the maximum amount MFC can pay in cash dividends per share and maintain a minimum current ratio of 2 to 1? Assume that all accounts other than cash remain unchanged.

  A. $2.05
  B. $2.50
  C. $3.35
  D. $3.80
  B. $2.50

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  Choice "b" is correct. The current ratio is found by dividing current assets by current liabilities. Presently current assets are:

  

  Because current liabilities must be two times current liabilities, the current assets cannot go below $1,800,000. Thus current assets can go down:

  

  On a per share basis this is $250,000 / 100,000 shares or $2.50 per share. Choices "a", "c", and "d" are incorrect, per the above calculation.

• Question 424:

  Which of the following actions is required to ensure the validity of a contract between a corporation and a director of the corporation?

  A. An independent appraiser must render to the board of directors a fairness opinion on the contract.
  B. The director must disclose the interest to the independent members of the board and refrain from voting.
  C. The shareholders must review and ratify the contract.
  D. The director must resign from the board of directors.
  B. The director must disclose the interest to the independent members of the board and refrain from voting.

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  Choice "b" is clearly the best answer here, although it is not completely correct. Directors owe their corporation a duty of loyalty and must act solely in the best interests of the corporation. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders who then approve the transaction, or the transaction is fair. Thus, disclosing the interest to the independent members and refraining from voting is one way to ensure the validity of a contract between a director and his or her corporation, but it technically is not required as disclosure to and approval by the shareholders also ensures validity, as does making sure the transaction is fair to the corporation. Nevertheless, the other choices are clearly incorrect - making this the best choice. Choice "a" is incorrect. A transaction with an interested director will be upheld if it is fair, but it is not necessary to hire an independent appraiser to prove fairness. Choice "c" is incorrect. One method of approving a contract with an interested director is to disclose all of the material facts to the shareholders and seek their approval. Merely allowing the shareholders to review the contract is not sufficient. Choice "d" is incorrect. To ensure the validity of a contract between a corporation and a director of the corporation, it is not necessary for the director to resign from the board (i.e., a director is not required to resign because of a conflict of interest). The corporation can approve the conflict if it is disclosed and the director does not participate in the approval process.

• Question 425:

  Handyman Inc. operates a chain of hardware stores across New England. The controller wants to determine the optimum safety stock levels for an air purifier unit. The inventory manager has compiled the following data.

  A. $1,750
  B. $1,950
  C. $2,000
  D. $650

  A. $1,750

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  Choice "a" is correct. $1,750 total annual cost of safety stock of 100 units.

  

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

• Question 426:

  When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is:

  A. 24.0 percent.
  B. 35.3 percent.
  C. 36.0 percent.
  D. 36.7 percent.
  D. 36.7 percent.

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  Choice "d" is correct. The formula for calculating the cost of a credit policy is:

  

  Therefore, the cost of customers taking this discount is 36.7% of the invoice price of the sale. Choices "a", "b", and "c" are incorrect, per the above answer.

• Question 427:

  An increase in the minimum wage:

  I. Will move employers down the labor demand curve, causing the quantity of labor demanded to fall.

  II.

  Is likely to increase the supply of labor, as more people will be willing to work for the higher wage.

  A. Only I.
  B. Only II.
  C. Both I and II.
  D. Neither I nor II.
  I. Will move employers down the labor demand curve, causing the quantity of labor demanded to fall. II. Is likely to increase the supply of labor, as more people will be willing to work for the higher wage.
  D. Neither I nor II.

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  Choice "d" is correct; neither statement I nor statement II are correct. Statement I is incorrect, as an increase in the minimum wage will move employers up, not down, the labor demand curve, causing the quantity of labor demanded to fall. Statement II is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does not increase the supply of labor, only the quantity supplied of labor. Choices "a", "b", and "c" are incorrect, per the above.

• Question 428:

  In which stage of supply chain management will the firm's management turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, with a focus on customer service?

  A. Cross-functional teams.
  B. Integrated enterprise.
  C. Extended supply chain.
  D. Supply chain communities.
  A. Cross-functional teams.

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  Choice "a" is correct. In the cross-functional teams stage of supply chain management, the firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and

  the focus will be on customer service.

  Choice "b" is incorrect. In the integrated enterprise stage of supply chain management, the firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards

  the main business issue of the cost of customer service.

  Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable

  growth.

  Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks.

• Question 429:

  When purchasing temporary investments, which one of the following best describes the risk associated with the ability to sell the investment in a short period of time without significant price concessions?

  A. Interest rate risk.
  B. Purchasing power risk.
  C. Financial risk.
  D. Liquidity risk.
  D. Liquidity risk.

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  Choice "d" is correct. Liquidity risk is associated with the ability to sell the temporary investment in a short period of time without significant price concessions. Choice "a" is incorrect. Interest rate risk is the fluctuation in the value of a "financial

  asset" when interest rates change. Choice "b" is incorrect. Purchasing power risk is the risk that price levels will change and affect asset values (mostly real estate).

  Choice "c" is incorrect. Financial risk is a general category of risk that includes:

  ?Interest rate risk

  ?Market risk

  ?Purchasing power risk

  ?Liquidity risk

  ?Default risk

• Question 430:

  Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will:

  A. Lose, because Locke's action was not authorized by the partnership agreement.
  B. Lose, because Locke was not an agent of the partnership.
  C. Win, because Locke had express authority to bind the partnership.
  D. Win, because Locke had apparent authority to bind the partnership.
  D. Win, because Locke had apparent authority to bind the partnership.

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  Choice "d" is correct. Every partner is an agent of the partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. It would be usual for a partner in a

  kitchen equipment business to have authority to purchase stoves. Thus, Gage will win because of Locke's apparent authority.

  Choice "a" is incorrect. Every partner is an agent for his partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership.

  Choice "b" is incorrect. Every partner is an agent of the partnership.

  Choice "c" is incorrect. Locke did not have express authority to purchase the stoves. The facts state that Locke was not authorized to purchase the stoves and thus lacked express authority.