BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Practice Questions and Answers

Correct Answer: B

Choice "b" is correct. The business judgment rule applies to officers as well as directors, who in their capacity, act in a manner the officer believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise. If the standards of the business judgment rule are met, the officer is not liable to the company for resulting damages. Choices "a", "c", and "d" are incorrect, per the above rule.

Correct Answer: C

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.

Correct Answer: D

Choice "d" is correct. A period of inflation increases the price level, which is negatively related to the

purchasing power of money (inflation erodes the value of money).

Choice "a" is incorrect. When price levels increase, those with fixed amounts of money are hurt.

Choice "b" is incorrect. The relationship between price levels and the purchasing power of money is

negative, or inverse.

Choice "c" is incorrect. Inflation helps anyone with a fixed obligation since the debt can be repaid in inflated

dollars. Those receiving a specific fixed amount are harmed.

Correct Answer: C

Choice "c" is correct. If demand is price inelastic, an increase in price will result in an increase in total

revenue (positive relationship). Choice "b" is incorrect. When demand is price inelastic, an increase in

price results in a decrease in quantity demanded that is proportionately smaller than the increase in price,

thus having the result of an increase in total revenue (price multiplied by quantity).

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

Correct Answer: C

Choice "c" is correct. A price elasticity of demand of 2.0 means demand will change by 2?(as a

percentage) for any change in price. This is called elastic.

Choice "a" is incorrect. Perfectly elastic demand does not exist.

Choice "b" is incorrect. Perfectly inelastic demand means the quantity demanded will not change when

price changes.

Choice "d" is incorrect. Inelastic demand responds less than 1?(as a percentage) for a change in price.

Correct Answer: B

Choice "b" is correct. Target product mix and production scheduling would be operational plans.

Strategy is much more general and conceptual.

Choices "a", "c", and "d" are incorrect, which are parts of strategy.

Correct Answer: B

Choice "b" is correct. When using the net present value method of capital budgeting, different hurdle rates can be used for each year of the project. Choice "a" is incorrect. The desired rate of return for capital projects is established by management. Choice "c" is incorrect. The internal rate of return determines the discount rate that will equate the discounted cash inflows with the outflows, thus resulting in no gain or loss (breakeven). Choice "d" is incorrect. Both the net present value method and the internal rate of return model are discounted cash flow methods.

Correct Answer: C

Choice "c" is correct. Just-in-time has the goal to minimize the level of inventory carried. Typical

characteristics include lot sizes equal to one, insignificant set-up times and costs, and balanced and level

workloads. In a just-in-time environment, the flow of goods is controlled by a "pull" approach, where an

item is produced only when it is needed down the line, and not a "push-through" system.

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

Correct Answer: C

Choice "c" is correct. The cost to issue the commercial paper is the $20,000 original issue discount ($1

million - $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to

borrow $980,000 for 3 months.

The 3-month interest cost is 2.16% ($21,200 / $980,000).

The annual interest cost is 8.65%

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

Correct Answer: B

Choice "b" is correct. Default risk is the risk that the security will not be repaid because the issuing entity is insolvent or illiquid. U.S. Treasury securities are issued by the Treasury Department, which has virtually no risk of being insolvent or illiquid. Choice "a" is incorrect. Securities issued by certain federal government agencies carry slightly more default risk than U.S. treasuries because these agencies are (usually) not as large or liquid as the U.S. Treasury. Choice "c" is incorrect. Repurchase agreements are sales by dealers in government securities who agree to repurchase these securities at a specific time and price. The risk of default is high because it is based upon the ability of the dealer to repurchase the securities. Choice "d" is incorrect. Bankers' acceptances are drafts drawn on a bank, which guarantees payment at maturity. The default risk is higher because the execution of the acceptance is based upon the solvency of the bank.