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

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

• Question 71:

  An American importer expects to pay a British supplier 500,000 British pounds in three months. Which of the following hedges is best for the importer to fix the price in dollars?

  A. Buying British pound call options.
  B. Buying British pound put options.
  C. Selling British pound put options.
  D. Selling British pound call options.
  A. Buying British pound call options.

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  Choice "a" is correct. To fix a price in dollars to buy British pounds, British pound call options should be purchased. Call options would allow, but not require, the purchaser of the call to acquire the currency (British pounds) for a specified price

  at or before a specified time in the future. If the price goes down, the purchaser (the importer) would exercise the options; if not, the purchaser (importer) would buy the British pounds in the market and let the options expire. British pound

  futures could also be used, but that was not one of the choices listed.

  Choice "b" is incorrect. Buying British pound put options would allow, but not require, the purchaser of the put to sell the currency for a specified price at a specified time in the future. Since the importer needs British pounds, buying put options

  would not work. The importer needs to end up with British pounds.

  Choice "c" is incorrect. Selling British pound put options would not work. The importer needs to end up with British pounds. Selling put options could work, but the option would be exercised, or not, by the purchaser and not by the importer. If

  the options were not exercised, the importer could end up with nothing (other than the option premium).

  Choice "d" is incorrect. Selling British pound call options would not work. The importer needs to end up with British pounds; if call options are sold, the other party can exercise the options or let them expire, and if the options were exercised,

  the importer would have to supply the British pounds. This answer is backwards.

• Question 72:

  Which of the following effects would a lockbox most likely provide for receivables management?

  A. Minimized collection float.
  B. Maximized collection float.
  C. Minimized disbursement float.
  D. Maximized disbursement float.
  A. Minimized collection float.

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  Choice "a" is correct. A lockbox system expedites cash inflows (minimizes collection float) by having a bank receive payments from a company's customers directly, via mailboxes to which the bank has access. Payments that arrive in these

  mailboxes are deposited into the company's account immediately.

  Choice "b" is incorrect. Lockboxes minimize rather than maximize collection float.

  Choices "c" and "d" are incorrect. Lockbox systems relate to collection rather than disbursement float.

• Question 73:

  A characteristic of the payback method (before taxes) is that it:

  A. Incorporates the time value of money.
  B. Neglects total project profitability.
  C. Uses accrual accounting inflows in the numerator of the calculation.
  D. Uses the estimated expected life of the asset in the denominator of the calculation.
  B. Neglects total project profitability.

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  Choice "b" is correct. The payback method neglects total project profitability. It simply looks at the time required to recover the initial investment; subsequent receipts are ignored.

  Choice "a" is incorrect. Payback does not incorporate the time value of money.

  Choice "c" is incorrect. Payback uses cash flow, not accrual accounting income.

  Choice "d" is incorrect. The denominator is the annual cash inflows.

• Question 74:

  The Waymand family typically ate hamburger as a regular staple in their diet. In the last few years, the family income has doubled, and they have now replaced hamburger with steak as a regular staple in their diet. This is an example where the demand for hamburger:

  A. Is relatively elastic.
  B. Is perfectly elastic.
  C. Responds as an inferior good.
  D. Is perfectly inelastic.
  C. Responds as an inferior good.

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  Choice "c" is correct. An inferior good is one for which the demand declines as income increases. A normal good would experience an increase in demand in response to an increase in income. Because the demand for hamburger went down

  as income increased, it is an inferior good.

  Choices "a", "b", and "d" are incorrect. The elasticity of demand for a good is calculated by measuring the change in quantity demanded over the change in price (not income). The question does not have sufficient information to calculate the

  elasticity of the demand for hamburger.

• Question 75:

  When employing the MACRS method of depreciation in a capital budgeting decision, the use of MACRS as compared to the straight-line method of depreciation will result in:

  A. Equal total depreciation for both methods.
  B. MACRS producing less total depreciation than straight line.
  C. Equal total tax payments, after discounting for the time value of money.
  D. MACRS producing more total depreciation than straight line.
  A. Equal total depreciation for both methods.

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  Choice "a" is correct. MACRS and straight line depreciation will be equal in total (only the timing differs).

  Choices "b" and "d" are incorrect, per above.

  Choice "c" is incorrect. The timing of the depreciation tax shields will differ. The discounting will result in different present values based on the differing timing.

• Question 76:

  Assume that each day a company writes and receives checks totaling $10,000. If it takes five days for the checks to clear and be deducted from the company's account, and only four days for the deposits to clear, what is the float?

  A. $10,000 B. $0
  C. $(10,000)
  D. $25,000
  A. $10,000 B. $0

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  Choice "a" is correct. $10,000. Float is the difference between the balance of checks outstanding, which have not cleared the bank and deposits made but which have not yet cleared the bank here.

  

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

• Question 77:

  Which of the following might be considered the most expansionary set of fiscal policies?

  A. Increase government purchases, increase in taxes.
  B. Increase government purchases, decrease in taxes.
  C. Decrease in taxes, increase in the money supply.
  D. Increase in government purchases, increase in the money supply.
  B. Increase government purchases, decrease in taxes.

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  Choice "b" is correct. Expansionary fiscal policy involves increasing government purchases and/or decreasing taxes. Both increases in government spending and decreases in taxes cause the aggregate demand curve to shift right and thus

  cause real GDP (output) to increase.

  Choice "a" is incorrect. An increase in taxes is an example of contractionary fiscal policy.

  Choice "c" is incorrect. An increase in the money supply is expansionary monetary policy (not fiscal policy).

  Choice "d" is incorrect per above Explanation.

• Question 78:

  In which stage of supply chain management will integration move 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?

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

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  Choice "c" is correct. 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 "a" is incorrect. 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 "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 79:

  When evaluating capital budgeting analysis techniques, the payback period emphasizes:

  A. Liquidity.
  B. Profitability.
  C. Net income.
  D. The accounting period.
  A. Liquidity.

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  Choice "a" is correct. The payback period is the time period required for cash inflows to recover the initial investment. The emphasis of the technique is on liquidity (i.e., cash flow). Choices "b", "c", and "d" are incorrect, per the above Explanation.

• Question 80:

  A vendor offered Wyatt Co. $25,000 compensation for losses resulting from faulty raw materials.

  Alternately, a lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and 50% of any award over $35,000. Possible court awards with their associated probabilities are:

  

  Compared to accepting the vendor's offer, the expected value for Wyatt to litigate the matter to verdict provides a:

  A. $4,000 loss.
  B. $18,200 gain.
  C. $21,000 gain.
  D. $38,000 gain.
  A. $4,000 loss.

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  Choice "a" is correct.

  

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