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

Correct Answer: B

Choice "b" is correct.

Rule: The death of a general partner will by operation of law, dissolve the limited partnership. Because the

dissolution is by operation of law, there is no requirement to attain a judicial decree. Remaining limited

partners do not automatically become general partners as a result of the death of the general partner.

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

Correct Answer: A

Choice "a" is correct. The transfer of a member interest requires the consent of the other members. Members may not assign their interest without the other members' consent. Choice "b" is incorrect. Unless the members have agreed to operate as a manager managed limited liability company, all members have the power to participate in management. Choice "c" is incorrect. Members in a limited liability company all have limited personal liability. Choice "d" is incorrect. Unless otherwise agreed, members have the right to manage the every day operations of a limited liability company. This can include the ordering of office supplies.

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. With an increase in the minimum wage, total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage. Choice "a" is incorrect. Firms currently paying above the new minimum wage would generally be unaffected, not raise their pay rates. Choice "b" is incorrect. Firms paying at the current minimum wage rate would attempt to reduce labor, not generally be unaffected. Choice "d" is incorrect. If a marginally cheaper, not more expensive.

Correct Answer: D

Choice "d" is an incorrect statement and the correct choice. The best description of a value chain is that value starts with the suppliers who provide the raw materials for a production process, continues with the firm and its strategic plan, continues with the value created by the customers, and then ends with the disposal and recycling of the materials. Choices "a", "b", and "c" are incorrect, as all are correct statements with regard to value chain analysis.

Correct Answer: B

Choice "b" is correct. Customer preference analysis is not a major strategic framework that has been proven to be useful for value chain analysis. Choices "a", "c", and "d" are incorrect, as the three major types of strategic frameworks that have been proven to be useful for value chain analysis are industry structure analysis, core competencies analysis, and segmentation analysis.

Correct Answer: C

Choice "c" is correct. $63,000 net cash flow for the tenth year.

Alternate Computation:

In year 10, Moore will generate a $100,000 profit from the incremental sales (2000 units ?($500 - $450)). This profit will be taxed at 40%, so the net after-tax increase in cash flow is $60,000. The machine is fully depreciated in year 10 because it was depreciated over a 5-year life. The tax basis of the machine is zero on the date Moore receives a $5,000 salvage value for the machine. The gain on the machine of $5,000 ($5,000 SV - $0 Basis) is taxed at 40%, or $2,000 in total tax outflow for the gain, so the net inflows on the salvage is $3,000. Therefore, the total after-tax cash flows in year 10 for the new machine is $60,000 + $3,000 = $63,000.

Correct Answer: B

Choice "b" is correct. Capital budgeting decisions do not include the financing of short-term working capital

needs, which are more operational in nature.

Choices "a", "c", and "d" are incorrect, as these are all types of capital budgeting decisions.

Correct Answer: B

Rule: Relevant costs are only those costs that will differ among many alternatives.

Choice "b" is correct. The disposal price of the old equipment is most relevant because it is an expected future inflow that will differ among alternatives. If this old equipment is replaced, there will be a cash inflow from the sale of the old equipment. If the old equipment is kept, there will be no cash inflow from the sale of the old equipment. Choice "a" is incorrect. The original cost of the old equipment is a sunk cost and, therefore, not relevant. Choice "c" is incorrect. The gain or loss on the disposal of the old equipment is not relevant. The gain or loss is an accounting computation that combines the book value, which is always not relevant, and the disposal value, which is relevant. The result is meaningless to future decisions and, therefore, is not relevant. Choice "d" is incorrect. The book value is not relevant to future decisions because the undepreciated sunk cost of an asset will only reduce net income in the future as either depreciation expense or as a loss on disposal.

Correct Answer: B

Choice "b" is correct. The payback method measures the time required to recover the initial investment.

Choice "a" is incorrect. Discounted cash flows are used for several methods of capital budgeting; this is a

generic term.

Choice "c" is incorrect. The NPV method does not measure the length of time required to recover the initial

cash outlay.

Choice "d" is incorrect. The accounting rate of return does not measure the time to recover the initial

investment.