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

Correct Answer: C

Choice "c" is correct.

Rules: A partner has no right to assign an interest in partnership property because a partner's rights in

partnership property are limited to using the property for partnership purposes. However, a partner does

have a right to assign her interest in partnership distributions. The assignee does not become a partner,

but merely has a right to receive whatever distributions the assignor would have received.

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

Correct Answer: C

Choice "c" is correct. Absent an agreement to the contrary, if a member of an LLC dies, the LLC is

dissolved unless the other members consent to continue.

Choice "a" is incorrect, because the LLC does not have to dissolve upon the death of a member.

Choice "b" is incorrect, because the LLC does not cease to exist immediately.

Choice "d" is incorrect, because the LLC does not continue unless the members consent to continue.

Correct Answer: C

Choice "c" is correct. Stockholders have a right to inspect certain corporate records.

Choice "a" is incorrect. Declaration of dividends is within the directors' discretion. There is no absolute right

of shareholders to receive annual dividends.

Choice "b" is incorrect. Officers are appointed by the directors; they are not elected by the shareholders.

Choice "d" is incorrect. Shareholders do not have a right to force the corporation to issue a new class of

stock.

Correct Answer: A

Choice "a" is correct.

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

Correct Answer: A

Choice "a" is correct. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money. Choice "b" is incorrect. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. Although the payback method focuses on liquidity and measures risk, project cash flows after the initial investment are not considered; thus, profitability is ignored. Choice "c" is incorrect. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. Although the payback method focuses on liquidity and measures risk, project cash flows after the initial investment are not considered; thus, profitability is ignored. Choice "d" is incorrect. Salvage value is specifically considered as part of payback computations because it contributes to the incoming cash flow when the asset is sold.

Correct Answer: B

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.

Correct Answer: A

Choice "a" is correct. The capital asset pricing model formula is:

R = RF + B (RM-RF)

Where:

R = Required return rate on equity

RF = Risk free rate earned on U.S. treasury bonds.

B = Beta coefficient

RM = Expected market return (earnings).

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

Correct Answer: D

Choice "d" is correct. The total cost for a standard account is:

Cost per year for premium is cost of the extra amount ($2,000) that Kemple must maintain in the account.

Total per year premium (10% ?$2,000) = $200

The premium account will save $16.

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

Correct Answer: B

Choice "b" is correct. If a seller extends credit to a purchaser for a period of time longer than the purchaser's operating cycle, the seller is, in effect, financing more than just the purchaser's inventory needs. Choice "a" is incorrect. Accounts receivable would be higher than those companies whose credit period is shorter than the purchaser's operating cycle. Choice "c" is incorrect. Seller is financing the purchaser, but not necessarily long-term assets. Choice "d" is incorrect. It is appropriate for the seller to have stated policies for discount rate and credit periods.

Correct Answer: D

Choice "d" is correct. Shipping costs (which are selling costs) would not be considered a carrying cost

associated with inventory.

Choices "a", "b", and "c" are incorrect. Each of the following would be considered a carrying cost

associated with inventory.

A. Insurance costs.

B. Cost of capital invested in the inventory.

C. Cost of obsolescence.