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

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

• Question 441:

  If a retailer's terms of trade are 3/10, net 45 with a particular supplier, what is the cost on an annual basis of not taking the discount? Assume a 360-day year.

  A. 37.11 percent.
  B. 36.00 percent.
  C. 24.74 percent.
  D. 31.81 percent.
  D. 31.81 percent.

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  Choice "d" is correct. 31.81% annual cost of not taking the discount. Choices "a", "b", and "c" are incorrect, per the above calculation.

• Question 442:

  Edwards Manufacturing Corporation uses the standard Economic Order Quantity (EOQ) model. If the EOQ for Product A is 200 units and Edwards maintains a 50-unit safety stock for the item, what is the average inventory of Product A?

  A. 250 units.
  B. 150 units.
  C. 125 units.
  D. 100 units.
  B. 150 units.

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  Choice "b" is correct. 150 units is the average inventory including a 50-unit safety stock.

  

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

• Question 443:

  A recession can be caused by:

  A. An increase in aggregate demand.
  B. A decrease in aggregate supply.
  C. A decrease in aggregate demand.
  D. Both "b" and "c".
  D. Both "b" and "c".

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  Choice "d" is correct. Both choices "b" and "c" can cause a recession. A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply.

  Choice "a" is incorrect. An increase in aggregate demand will cause GDP to increase NOT decrease.

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

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

• Question 444:

  Bander Co. is determining how to finance some long-term projects. Bander has decided it prefers the benefits of no fixed charges, no fixed maturity date and an increase in the credit-worthiness of the company. Which of the following would best meet Bander's financing requirements?

  A. Bonds.
  B. Common stock.
  C. Long-term debt.
  D. Short-term debt.
  B. Common stock.

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  Choice "b" is correct. Common stock is an equity security that conveys ownership. Common stock does not require any payment, it does not mature and, because it increases equity while having no effect on debt, it decreases the debt equity

  ratio and increases the credit-worthiness of the firm.

  Choice "a" is incorrect. Bonds are debt instruments that require specific fixed payments, mature at a specific time and increase debt. Immediately after issue, increases in debt increase the debt equity ratio and decrease credit worthiness.

  Choice "c" is incorrect. Long-term debt requires specific fixed payments, includes maturity at a specific time and (by definition), increases debt. Immediately after issue, increases in debt increase the debt equity ratio and decrease credit

  worthiness.

  Choice "d" is incorrect. Short-term debt requires specific fixed payments, includes maturity at a specific time and, by definition, increase debt. Immediately after issue, increases in debt increase the debt equity ratio and decrease credit

  worthiness.

• Question 445:

  Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

  A. A merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares.
  B. A sale of all the assets of Trend, outside the regular course of business, to Acorn, for cash.
  C. An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.
  D. A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.
  D. A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.

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  Choice "d" is correct. A parent corporation owning 90% or more of a subsidiary may merge the subsidiary (short form merger) into the parent without the approval of the shareholders of either corporation or the approval of the subsidiary's

  board.

  Choices "a", "b", and "c" all require at least one of the corporations to follow the general procedure for fundamental corporate changes (i.e., board resolution notice, approval by majority shares, and filing).

• Question 446:

  Karen Parker wants to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. However, Parker has discovered that she needs either certification or approval from five

  separate local and state government agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars. However, Parker believes that if she is able to obtain capital resources, she can

  gain market share from the two major competitors.

  The market structure Karen Parker is attempting to enter is best described as:

  A. Pure competition.
  B. A natural monopoly.
  C. An oligopoly.
  D. Monopolistic competition.
  C. An oligopoly.

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  Choice "c" is correct. Major competitors and substantial capital requirements (high barriers to entry) are oligopolistic market conditions.

  Choice "a" is incorrect. Pure competition has small barriers to entry and numerous suppliers.

  Choice "b" is incorrect. A natural monopoly suggests that economic conditions allow only one supplier for efficiency purposes.

  Choice "d" is incorrect. Monopolistic competition has easier barriers to entry and more firms competing to supply the market than oligopoly.

• Question 447:

  If a firm's credit terms require payment within 45 days but allow a discount of 2 percent if paid within 15 days (using a 360 day year), the approximate cost/benefit of the trade credit terms is:

  A. 16 percent.
  B. 48 percent.
  C. 24 percent.
  D. 36 percent.
  C. 24 percent.

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  Choice "c" is correct. The formula for computing the cost/benefit for trade discounts is:

  

  Choice is 24% ("c").

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

• Question 448:

  Economic fluctuations (or business cycles) are best described as:

  A. Long run increases in a nations standard of living.
  B. Changes in the profits of a given firm from one year to the next.
  C. Fluctuations of equal duration and equal severity in the level of economic activity over time.
  D. Fluctuations in the level of economic activity, relative to a long-term growth trend.
  D. Fluctuations in the level of economic activity, relative to a long-term growth trend.

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  Choice "d" is correct. By the definition of business cycles.

  Choice "a" is incorrect. This is economic growth.

  Choice "b" is incorrect. Business cycles refer to overall economic activity not the activity of one firm.

  Choice "c" is incorrect. Business cycles are not predictable and are not of equal duration nor of equal severity.

• Question 449:

  The following information regarding a change in credit policy was assembled by the Wilson Wax Company. The company has a required rate of return of 10 percent and a variable cost ratio of 60 percent.

  

  The pretax cost of carrying the additional investment in receivables, using a 360-day year, would be:

  A. $5,760
  B. $9,600
  C. $8,160
  D. $960
  A. $5,760

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  Choice "a" is correct.

  Step 1 Determine the average accounts receivable balance and the additional accounts receivable as follows:

  

  Therefore, the accounts receivable balance is $96,000 higher under the new credit policy.

  Step 2 Determine the additional INVESTMENT in the additional accounts receivable.

  Although Wilson has an additional $96,000 in accounts receievable, Wilson's actual investment in the additional accounts receivable is only 60% of $96,000 (because variable costs are 60% of sales). Wilson's investment in the additional

  accounts receivable is calculated as follows:

  $96,000 x 60% = $57,600

  Step 3 Calculate the cost of carrying the additional accounts receivable.

  Wilson's additional investment in accounts receivable is $57,600 and we are given a 10% required rate of return. This means that Wilson's carrying cost of $5,760 is calculated as follows:

  $57,600 x 10% = $5,760

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

• Question 450:

  Under frost-free conditions, Cal Cultivators expects its strawberry crop to have a $60,000 market value. An unprotected crop subject to frost has an expected market value of $40,000. If Cal protects the strawberries against frost, then the market value of the crop is still expected to be $60,000 under frostfree conditions and $90,000 if there is a frost. What must be the probability of a frost for Cal to be indifferent to spending $10,000 for frost protection?

  A. .167
  B. .200
  C. .250
  D. .333
  B. .200

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  Choice "b" is correct. If there is no frost, then there is no difference between Cal's income with or without the insurance-the crop is worth $60,000 either way. However, if the insurance is purchased and a frost occurs, Cal earns $50,000 more

  with insurance ($90,000 - $40,000) than he would without the insurance.

  The expected value of having the insurance is therefore:

  Probability of frost x $50,000 + Probability of no frost x $0

  Cal will be indifferent to spending $10,000 for frost protection when the expected value of the insurance equals the cost of the insurance:

  Probability of frost x $50,000 = $10,000

  Probability = 20%

  Choices "a", "c", and "d" are incorrect based on the above Explanation.