Question 1

Accounting profit will always be

Accepted Answer

A)  more than economic profit. 
B)  equal to sunk costs. 
C)  less than economic profit. 
D)  equal to implicit costs. 
A)  more than economic profit. 
B)  equal to sunk costs. 
C)  less than economic profit. 
D)  equal to implicit costs.

Question 2

Owners face unlimited liability in

Accepted Answer

A)  national corporations and global corporations. 
B)  partnerships and corporations. 
C)  proprietorships and corporations. 
D)  proprietorships and partnerships. 
A)  national corporations and global corporations. 
B)  partnerships and corporations. 
C)  proprietorships and corporations. 
D)  proprietorships and partnerships.

Question 3

The majority of business revenues earned in the United States are earned by

Accepted Answer

A)  proprietorships. 
B)  corporations. 
C)  partnerships. 
D)  cooperatives. 
A)  proprietorships. 
B)  corporations. 
C)  partnerships. 
D)  cooperatives.

Question 4

Accounting profit is equal to

Accepted Answer

A)  total revenue minus dividends and interest. 
B)  dividends paid. 
C)  total revenue minus implicit costs. 
D)  total revenue minus explicit costs. 
A)  total revenue minus dividends and interest. 
B)  dividends paid. 
C)  total revenue minus implicit costs. 
D)  total revenue minus explicit costs.

Question 5

The stock market showed a PE for BluarCo equal to 17. What does PE mean?

Accepted Answer

A)  price-earnings ratio 
B)  profit-earnings ratio 
C)  perfect-earnings ratio 
D)  price-equity ratio 
A)  price-earnings ratio 
B)  profit-earnings ratio 
C)  perfect-earnings ratio 
D)  price-equity ratio

Question 6

A proprietorship is

Accepted Answer

A)  a business with annual sales of less than $50,000 a year. 
B)  a business owned by one individual that employs 10 or fewer workers, and has been in business less than 15 years. 
C)  a business owned by one individual who receives the profits and is legally responsible for the debts of the firm. 
D)  a form of business in which the stock of the company is closely held by members of one family. 
A)  a business with annual sales of less than $50,000 a year. 
B)  a business owned by one individual that employs 10 or fewer workers, and has been in business less than 15 years. 
C)  a business owned by one individual who receives the profits and is legally responsible for the debts of the firm. 
D)  a form of business in which the stock of the company is closely held by members of one family.

Question 7

All of the following are advantages of organizing a business as a sole proprietorship EXCEPT

Accepted Answer

A)  ease of formation. 
B)  limited liability. 
C)  ease of decision-making. 
D)  single taxation. 
A)  ease of formation. 
B)  limited liability. 
C)  ease of decision-making. 
D)  single taxation.

Question 8

The random walk theory says that

Accepted Answer

A)  stock prices follow a trend for varying periods of time. 
B)  successive stock prices increase more than they decrease. 
C)  successive stock prices are dependent on the weighted average of the previous week's prices. 
D)  successive stock prices are independent of each other. 
A)  stock prices follow a trend for varying periods of time. 
B)  successive stock prices increase more than they decrease. 
C)  successive stock prices are dependent on the weighted average of the previous week's prices. 
D)  successive stock prices are independent of each other.

Question 9

When economic profits are positive, accounting profits

Accepted Answer

A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero. 
A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero.

Question 10

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?

Accepted Answer

A)  $2.0 million 
B)  $100,000 
C)  $1.9 million 
D)  $2.1 million 
A)  $2.0 million 
B)  $100,000 
C)  $1.9 million 
D)  $2.1 million

Question 11

The main advantage of a corporate form of organization is that

Accepted Answer

A)  shareholders have limited liability. 
B)  shareholders have unlimited liability. 
C)  shareholders are not subject to double taxation. 
D)  all corporate profits must be distributed as dividends. 
A)  shareholders have limited liability. 
B)  shareholders have unlimited liability. 
C)  shareholders are not subject to double taxation. 
D)  all corporate profits must be distributed as dividends.

Question 12

A firm that is not maximizing profits

Accepted Answer

A)  would never be able to operate in the United States. 
B)  must not be owned by stockholders. 
C)  may find it difficult to raise financial capital from external capital markets. 
D)  is likely to face legal prosecution from the Department of Commerce. 
A)  would never be able to operate in the United States. 
B)  must not be owned by stockholders. 
C)  may find it difficult to raise financial capital from external capital markets. 
D)  is likely to face legal prosecution from the Department of Commerce.

Question 13

Suppose a firm wanted to go out of business. The firm sells all its assets and pays off everything it owes to creditors. The stockholders would receive

Accepted Answer

A)  nothing. 
B)  their annual dividend payment. 
C)  one half of the funds; the other half of the funds goes to bondholders. 
D)  the rest of the funds, after everyone who has a claim against the firm is paid. 
A)  nothing. 
B)  their annual dividend payment. 
C)  one half of the funds; the other half of the funds goes to bondholders. 
D)  the rest of the funds, after everyone who has a claim against the firm is paid.

Question 14

The real rate of interest is 4% and the anticipated rate of inflation is 1%. What is the nominal rate of interest?

Accepted Answer

A)  1% 
B)  3% 
C)  4% 
D)  5% 
A)  1% 
B)  3% 
C)  4% 
D)  5%

Question 15

The real rate of interest is 5% and the anticipated rate of inflation is 2%. What is the nominal rate of interest?

Accepted Answer

A)  7% 
B)  5% 
C)  3% 
D)  2% 
A)  7% 
B)  5% 
C)  3% 
D)  2%

Question 16

Which method of corporate finance is used the most? Why?

Accepted Answer

Reinvestment accounts for about 75 perce

Question 17

Which of the following statements regarding accounting and economic profits is FALSE?

Accepted Answer

A)  Economic profits can be zero even if accounting profits are positive. 
B)  Economic profits = total revenue - (explicit + implicit costs) 
C)  Accounting profits can be negative if economic profits are positive. 
D)  Accounting profits = total revenue - explicit costs 
A)  Economic profits can be zero even if accounting profits are positive. 
B)  Economic profits = total revenue - (explicit + implicit costs) 
C)  Accounting profits can be negative if economic profits are positive. 
D)  Accounting profits = total revenue - explicit costs

Question 18

Economists assume that the goal of a firm is to

Accepted Answer

A)  maximize economic profits. 
B)  sell as many units as possible. 
C)  maximize gross revenues. 
D)  be the largest firm in its industry. 
A)  maximize economic profits. 
B)  sell as many units as possible. 
C)  maximize gross revenues. 
D)  be the largest firm in its industry.

Question 19

If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is closest to what your $100,000 will be worth in three years?

Accepted Answer

A)  $155,000 
B)  $115,000 
C)  $120,000 
D)  $133,000 
A)  $155,000 
B)  $115,000 
C)  $120,000 
D)  $133,000

Question 20

The payment for the use of a resource in an amount higher than the resource's opportunity cost is

Accepted Answer

A)  a proprietorship. 
B)  an irrational economic concept. 
C)  economic rent. 
D)  reinvestment. 
A)  a proprietorship. 
B)  an irrational economic concept. 
C)  economic rent. 
D)  reinvestment.

Exam 21: Rents, Profits, and the Financial Environment of Business

Accounting profit will always be

Owners face unlimited liability in

The majority of business revenues earned in the United States are earned by

Accounting profit is equal to

The stock market showed a PE for BluarCo equal to 17. What does PE mean?

A proprietorship is

All of the following are advantages of organizing a business as a sole proprietorship EXCEPT

The random walk theory says that

When economic profits are positive, accounting profits

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?

The main advantage of a corporate form of organization is that

A firm that is not maximizing profits

Suppose a firm wanted to go out of business. The firm sells all its assets and pays off everything it owes to creditors. The stockholders would receive

The real rate of interest is 4% and the anticipated rate of inflation is 1%. What is the nominal rate of interest?

The real rate of interest is 5% and the anticipated rate of inflation is 2%. What is the nominal rate of interest?

Which method of corporate finance is used the most? Why?

Which of the following statements regarding accounting and economic profits is FALSE?

Economists assume that the goal of a firm is to

If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is closest to what your $100,000 will be worth in three years?

The payment for the use of a resource in an amount higher than the resource's opportunity cost is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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