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

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

• Question 451:

  Which of the following forms of business can be formed with only one individual owning the business?

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  B. Option B

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  Choice "b" is correct. A sole proprietorship and (in most states) a limited liability company can be formed with only one owner. A partnership requires two or more partners. Choices "a", "c", and "d" are incorrect per the above.

• Question 452:

  Which one of the following management considerations is usually addressed first in strategic planning?

  A. Overall goals of the firm.
  B. Organizational structure.
  C. Recent annual budgets.
  D. Being an industry leader.
  A. Overall goals of the firm.

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  Choice "a" is correct. Setting the overall goals of the firm is usually the starting point in strategic planning.

  Choice "b" is incorrect. The organizational structure will be partially determined by the goals of the firm.

  Choice "c" is incorrect. Recent annual budgets may be reviewed as an aid in planning, but they are not the first consideration in strategic planning. In fact, they often are ignored. Choice "d" is incorrect. Being an industry leader may be or

  become a goal of the firm, but that would be determined during the strategic planning process.

• Question 453:

  Residco, Inc. expects net income of $800,000 for the next fiscal year. Its targeted and current capital structure is 40 percent debt and 60 percent common equity. The director of capital budgeting has determined that the optimal capital spending for next year is $1.2 million. Residco does not plan to issue any new common equity next year. If Residco follows a strict residual dividend policy, what is the expected dividend payout ratio for next year?

  A. 90.0 percent.
  B. 66.7 percent.
  C. 40.0 percent.
  D. 10.0 percent.
  D. 10.0 percent.

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  Choice "d" is correct. A strict dividend policy guides a company's management to pay no more (and no less) in dividends from net income to generate a change in equity that produces or maintains a targeted capital structure. The dividend pay

  out ratio is the ratio of dividends to income.

  The call of the question requires the calculation of the ratio of dividends to income assuming income, capital projects and capital structure amounts as follows:

  

  Assuming the company is in compliance with the 40/60 Debt/Equity capital structure to begin with, 60% of the $1,200,000 in capital projects will be financed by additions to equity the come from new earnings of $800,000. The equity funded

  portion of capital projects is $720,000 ($1,200,000 x 60%).

  Following a strict residual dividend policy, the company will pay out the difference between is additions to equity ($800,000 in income) and the amounts reinvested in the business ($720,000). The dividend will be $80,000. ($800,000 $720,000).

  The dividend payout ratio is, therefore, 10% ($80,000 in dividends/ $800,000 in income).

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

• Question 454:

  The president of a company has signed a $10 million contract with a construction company to build a new corporate office. Which of the following corporate documents sets forth the scope of authority under which this transaction is governed?

  A. Certificate of Incorporation.
  B. Charter.
  C. Bylaws.
  D. Proxy statement.
  C. Bylaws.

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  Choice "c" is correct. The bylaws usually contain the rules for running the corporation.

  Choices "a" and "b" are incorrect. These are possible choices, but not as good an answer as "c". A corporation's articles of incorporation (called a charter in a few states) must set out certain information relevant to formation of the corporation,

  but it may include any other information that it is not illegal.

  However, usually details about intracorporate power are set out in bylaws rather than in the articles or charter.

  Choice "d" is incorrect. A proxy statement is a request to shareholders to allow their shares to be voted by a specified person in a specified way. It has nothing to do with a corporate president's authority.

• Question 455:

  Which of the following is not an external factor that directly affects the competitive environment of the firm?

  A. Barriers to market entry.
  B. Bargaining power of suppliers.
  C. Political issues.
  D. Existence of substitute products.
  C. Political issues.

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  Choice "c" is correct. Political issues are external factors that affect the overall industry, not simply the competitive environment of the firm.

  Choices "a", "b", and "d" are incorrect, as all of these factors directly affect the competitive environment of the firm.

• Question 456:

  Youngsten Electric is contemplating new projects for the next year that will require $30,000,000 of new financing. In keeping with its capital structure, Youngsten plans to use debt and equity financing as follows:

  A. 11.0%
  B. 13.0%
  C. 12.0%
  D. 11.8%

  B. 13.0%

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  Choice "b" is correct. The WACC is computed by multiplying the required returns on equity and debt by the percentage of equity and debt used to finance that particular project. Youngsten will use 33% debt ($10 million of $30 million total project cost) and 67% equity ($20 million of $30 million total project cost).

  

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

• Question 457:

  The benefits of a just-in-time system for raw materials usually include:

  A. Elimination of nonvalue adding operations.
  B. Increase in the number of suppliers, thereby ensuring competitive bidding.
  C. Maximization of the standard delivery quantity, thereby lessening the paperwork for each delivery.
  D. Decrease in the number of deliveries required to maintain production.
  A. Elimination of nonvalue adding operations.

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  Choice "a" is correct. The just-in-time system focuses on expediting the production process by having materials available as needed without having to store them prior to usage. Thus, the nonvalue adding operation of storing materials is eliminated.

  Choice "b" is incorrect. A just-in-time system is designed to facilitate the flow of materials whether the materials come from one or more suppliers. Competitive bidding is not a major benefit of the just-in-time system. Choice "c" is incorrect.

  Maximizing the delivery quantity of materials may increase the need to store the materials prior to using them. The just-in-time system focuses on minimizing storage time and storage costs. Lessening paperwork is not a focus of the just-intime system.

  Choice "d" is incorrect. With a just-in-time system, deliveries are made as materials are needed. A decrease in deliveries may increase the delivery quantity, thus increasing the need to store the materials prior to using them. The just-in-time

  system focuses on minimizing storage time and storage costs.

• Question 458:

  Which of the following segments of the economy will be least affected by the business cycle?

  A. Commercial construction industry.
  B. Machinery and equipment industry.
  C. Residential construction industry.
  D. Healthcare industry.
  D. Healthcare industry.

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  Choice "d" is correct. The business cycle is the rise and fall of economic activity relative to its long-term growth trend. During a contraction or a recession, most industries experience a decline in sales and profits. Similarly, during an

  expansion, most industries experience an increase in sales and profits.

  However, health care services are typically not affected by business cycles. People need medical services regardless of whether or not the economy is doing well. Thus, the health care industry is the least affected by the business cycle.

  Choice "a" is incorrect. During a downturn in economic activity (recession or contraction), firm investment in new plants and equipment typically drops off substantially. Thus, the demand for commercial construction is typically low during a

  contraction and high during an expansion. Thus, the commercial construction industry is sensitive to the business cycle.

  Choice "b" is incorrect. During a downturn in economic activity (recession or contraction) firm investment in new plants and equipment typically drops off substantially. Thus, the machinery and equipment industry is sensitive to business

  cycles. Sales grow during an expansion, but they tend to decline during a contraction or recession.

  Choice "c" is incorrect. The residential construction industry is sensitive to interest rates, unemployment rates, and consumer wealth. All of these fluctuate with the business cycle. As a result, the residential construction industry is sensitive to

  the business cycle.

• Question 459:

  Net working capital is the difference between:

  A. Current assets and current liabilities.
  B. Fixed assets and fixed liabilities.
  C. Total assets and total liabilities.
  D. Total assets and current liabilities.
  A. Current assets and current liabilities.

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  Choice "a" is correct. Current assets minus current liabilities equals net working capital. Choices "b", "c", and "d" are incorrect, per the above Explanation.

• Question 460:

  Which one of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?

  A. The borrower avoids the expense of maintaining a compensating balance with a commercial bank.
  B. There are no restrictions as to the type of corporation that can enter into this market.
  C. This market provides a broad distribution for borrowing.
  D. A benefit accrues to the borrower because its name becomes more widely known.
  B. There are no restrictions as to the type of corporation that can enter into this market.

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  Choice "b" is correct. There are restrictions as to the type of corporation that can enter into the commercial paper market for short-term financing, since the use of the open market is restricted to a comparatively small number of the most

  credit-worthy large corporations.

  The commercial paper market:

  A. Avoids the expense of maintaining a compensating balance with a commercial bank.

  C. Provides a broad distribution for borrowing.

  D. Accrues a benefit to the borrower because its name becomes more widely known.