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

Correct Answer: A

Choice "a" is correct. The expenditure approach to computing GDP includes: Consumption Net exports Government expenditures Capital investment Choices "b", "c", and "d" are incorrect, per the above.

Correct Answer: B

Choice "b" is correct. Decreasing aggregate demand and increasing aggregate supply will reduce the

inflationary pressures.

Choice "a" is incorrect. Increasing aggregate demand causes the price level to rise.

Choice "c" is incorrect. Decreasing aggregate supply causes the price level to rise.

Choice "d" is incorrect. Both of these would cause the price level to rise.

Correct Answer: D

Choice "d" is correct. The characteristics of monopolistic competition include:

?Numerous firms with differentiated products.

?Ease of entry - few barriers.

?Firms exact some influence over price and market.

?Non-price competition is frequent and critical.

Choice "a" is incorrect. Monopolistic competition has a few obstacles. A market with no obstacles is in

perfect competition.

Choice "b" is incorrect. Significant obstacles are characteristic of oligopoly.

Choice "c" is incorrect. Significant capital requirements represent a significant barrier to entry, which is

characteristic of oligopoly.

Correct Answer: B

Rule: Overall strategies are divided into two different types that are defined as follows: Cost leadership: Organization seeks to capture market share through maintaining the lowest cost. Differentiation: Organization seeks to capture market share by demonstrating product value. Choice "b" is correct. Organizations that sell economically inferior goods (necessities such as cotton swabs, light bulbs, etc.) are more likely to posture themselves as cost leaders than organizations that sell economically superior goods (luxuries such as cruise packages, fine china, jewelry, etc.) who will likely seek to differentiate the value of their product as part of their strategy. Choice "a" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation. Choice "c" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation. Choice "d" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation.

Correct Answer: A

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.

Correct Answer: D

Choice "d" is correct; neither statement I nor statement II are correct. Statement I is incorrect, as an increase in the minimum wage will move employers up, not down, the labor demand curve, causing the quantity of labor demanded to fall. Statement II is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does not increase the supply of labor, only the quantity supplied of labor. Choices "a", "b", and "c" are incorrect, per the above.

Correct Answer: A

Choice "a" is correct. Primary activities are those that are involved with the direct manufacture of products, the delivery of products through distribution channels, and the support of the product that exists after the sale is made (e.g., handling the raw materials, the manufacturing process, taking orders for the product, advertising the product, and servicing the product after it is sold). Choices "b", "c", and "d" are incorrect, as these are all considered support activities. Support activities are those activities that are performed by the support staff of an organization (e.g., purchasing of materials and supplies, development of the technology used, management of employees, accounting, finance, strategic planning, etc.).

Correct Answer: B

Choice "b" is correct. Internal costs analysis includes analyzing the internal value-creating ability of a firm,

so the sources of profit and costs of the internal activities of the firm must be analyzed.

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

Correct Answer: A

Choice "a" is correct. The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are readily available to consumers. Choice "b" is incorrect. When the cost of buyers switching to new products is low (not high), the effect of substitutes on the competitive environment of a firm is high. Choice "c" is incorrect. If few (not many close) substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available. Choice "d" is incorrect. If substitutes have equal performance and are priced at or below the firm's product, the competitive force of substitutes with respect to the firm is strong (not weak).

Correct Answer: C

Choice "c" is correct. When strategic alliances exist between a supplier and other firms that is a situation,

which increases the bargaining power of the suppliers. Choices "a", "b", and "d" are incorrect because they

all are factors that increase the bargaining power of the customer, which are:

?Customers make up a large volume of a firm's business.

?There is much information available to customers.

?The buyers have low switching costs.

?There are a high number of alternate suppliers (sellers) of the product.

Correct Answer: D

Choice "d" is correct. Minimum weighted average cost of capital is consistent with a firm's target or optimal

capital structure.

Choice "a" is incorrect. Minimum cost of debt is a component of minimum weighted average cost of capital.

Choice "b" is incorrect. Minimum risk results in a cost of capital heavily weighted in equity.

Choice "c" is incorrect. Minimum cost of equity results in a cost of capital heavily weighted in debt.

Correct Answer: D

Choice "d" is correct. Cash disbursements in April would include paying for purchases made in February and March. It would also include payroll expense and operating expenses. The calculation would be:

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

Correct Answer: D

Choice "d" is correct. Total interest for the loan is $100,000 ?7% or $7,000. The effective amount received is $80,000 after the 20% compensating balance. The effective interest is $7,000 / $80,000 = 8.75% Choices "a", "b", and "c" are incorrect, per the above calculation.

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.