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

Correct Answer: C

Choice "c" is correct.

Rule: Absent an agreement to the contrary, partners have equal management authority.

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

Correct Answer: C

Choice "c" is correct. Limited liability companies do not issue "shares" held by shareholders like in a

corporation. Instead, members (the owners) are said to have "interests" in the LLC.

Choices "a", "b", and "d" are incorrect. These are all required to be included in the articles of organization.

Correct Answer: B

Choice "b" is correct. Generally, a corporation is treated as an entity distinct from its shareholders and shareholders are not liable for the corporation's debts. However, where the shareholders do not treat the corporation as a distinct entity, such as where they commingle their personal funds with the corporation's funds, courts are likely to ignore the corporate form as well. Choice "a" is incorrect. An election to be taxed like a partnership under Subchapter S is not grounds to pierce the corporate veil. Choice "c" is incorrect. An ultra vires act is one beyond the corporation's powers. The persons who authorized the ultra vires act can be held personally liable for damages caused, but it is not a ground for piercing the corporate veil. Choice "d" is incorrect. Limiting personal liability is the main reason to incorporate. It is a ground for piercing the corporate veil only if it is done fraudulently (i.e., to avoid paying present creditors).

Correct Answer: B

Choice "b" is clearly the best answer here, although it is not completely correct. Directors owe their corporation a duty of loyalty and must act solely in the best interests of the corporation. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders who then approve the transaction, or the transaction is fair. Thus, disclosing the interest to the independent members and refraining from voting is one way to ensure the validity of a contract between a director and his or her corporation, but it technically is not required as disclosure to and approval by the shareholders also ensures validity, as does making sure the transaction is fair to the corporation. Nevertheless, the other choices are clearly incorrect - making this the best choice. Choice "a" is incorrect. A transaction with an interested director will be upheld if it is fair, but it is not necessary to hire an independent appraiser to prove fairness. Choice "c" is incorrect. One method of approving a contract with an interested director is to disclose all of the material facts to the shareholders and seek their approval. Merely allowing the shareholders to review the contract is not sufficient. Choice "d" is incorrect. To ensure the validity of a contract between a corporation and a director of the corporation, it is not necessary for the director to resign from the board (i.e., a director is not required to resign because of a conflict of interest). The corporation can approve the conflict if it is disclosed and the director does not participate in the approval process.

Correct Answer: A

Choice "a" is correct. An increase in the personal income tax will cause a decrease in aggregate demand

(i.e., causes the aggregate demand curve to shift left). As a result, an increase in taxes causes real GDP to

fall and unemployment to rise.

Choice "b" is incorrect. Real GDP will fall, not rise.

Choice "c" is incorrect. Real GDP will fall, not rise.

Choice "d" is incorrect. Unemployment will rise, not fall.

Correct Answer: C

Choice "c" is correct. The fundamental law of demand holds that there is an inverse relationship between price of the product and the quantity demanded. We move along the demand curve D-D. Choice "a" is incorrect. An increase in complementary product prices would decrease the demand curve (e.g., if PC prices increase, the demand for printers and other peripherals decrease). Choice "b" is incorrect. Increases in consumers and consumer income shift the demand curve itself. Choice "d" is incorrect. A decrease in price for a substitute product (like Pepsi) decreases demand for the other product (Coke).

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: A

Choice "a" is correct. The effects of income taxes on the net present value computations will decrease both

benefits and costs for the project. Net present value computations focus of the present value of cash flows.

Income taxes decrease both the benefit and the cost of cash flows.

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

Correct Answer: A

Choice "a" is correct. The internal rate of return is defined as the technique that determines the present value factor such that the present value of the after-tax cash flows equals the initial investment on the project. Alternately, the internal rate of return (IRR) is the discount rate that produces a NPV of zero. Choices "b", "c", and "d" are incorrect, per the above Explanation.

Correct Answer: A

Choice "a" is correct.

Step 1 Determine the average accounts receivable balance and the additional accounts receivable as

follows:

Therefore, the accounts receivable balance is $96,000 higher under the new credit policy.

Step 2 Determine the additional INVESTMENT in the additional accounts receivable.

Although Wilson has an additional $96,000 in accounts receievable, Wilson's actual investment in the

additional accounts receivable is only 60% of $96,000 (because variable costs are 60% of sales). Wilson's

investment in the additional accounts receivable is calculated as follows:

$96,000 x 60% = $57,600

Step 3 Calculate the cost of carrying the additional accounts receivable.

Wilson's additional investment in accounts receivable is $57,600 and we are given a 10% required rate of

return. This means that Wilson's carrying cost of $5,760 is calculated as follows:

$57,600 x 10% = $5,760

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