Question 1

The disadvantages of proprietorships include

Accepted Answer

A)  limited liability for the owner. 
B)  double taxation of business profits. 
C)  the fact that the proprietorship can continue even after the owner dies. 
D)  the fact that the proprietor is solely responsible for all the firm's debts. 
A)  limited liability for the owner. 
B)  double taxation of business profits. 
C)  the fact that the proprietorship can continue even after the owner dies. 
D)  the fact that the proprietor is solely responsible for all the firm's debts.

Question 2

Why is limited liability so important when firms try to raise large amounts of financial capital? How is this advantage of a corporation tied to a disadvantage of a corporation?

Accepted Answer

Limited liability is important in raisin

Question 3

A business owned by two or more joint owners, or partners, who share the responsibilities and the profits of the firm and are individually liable for all the debts is a(n)

Accepted Answer

A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership. 
A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership.

Question 4

Dividends are

Accepted Answer

A)  the portion of a corporation's profits that are distributed to stockholders. 
B)  the portion of a corporation's revenues that are distributed to bondholders. 
C)  bonuses given to managers of corporations, to ensure that the managers perform in the way that stockholders want. 
D)  taxes on the profits of corporations. 
A)  the portion of a corporation's profits that are distributed to stockholders. 
B)  the portion of a corporation's revenues that are distributed to bondholders. 
C)  bonuses given to managers of corporations, to ensure that the managers perform in the way that stockholders want. 
D)  taxes on the profits of corporations.

Question 5

In which of the following ways can a corporation raise new funds for investment? I. Issuing new shares of stock
II) Having existing stock resold between two owners

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 6

Suppose the best investment you could make with $200,000 in cash is to purchase a government bond that pays 10 percent interest per year. If you decide to invest the money in your own business instead of buying the government bond, the opportunity cost of this financial capital is

Accepted Answer

A)  $2,000 per year. 
B)  $200,000 per year. 
C)  $20,000 per year. 
D)  zero, because you already had the $200,000. 
A)  $2,000 per year. 
B)  $200,000 per year. 
C)  $20,000 per year. 
D)  zero, because you already had the $200,000.

Question 7

A payment for a resource above the opportunity cost of the resource is

Accepted Answer

A)  economic rent. 
B)  social rent. 
C)  nominal rent. 
D)  real rent. 
A)  economic rent. 
B)  social rent. 
C)  nominal rent. 
D)  real rent.

Question 8

Which of the following is the formula used for computing an accounting profit?

Accepted Answer

A)  accounting profits = total revenue - implicit costs 
B)  accounting profits = total revenue - (implicit + explicit costs) 
C)  accounting profits = total costs - total revenue 
D)  accounting profits = total revenue - explicit costs 
A)  accounting profits = total revenue - implicit costs 
B)  accounting profits = total revenue - (implicit + explicit costs) 
C)  accounting profits = total costs - total revenue 
D)  accounting profits = total revenue - explicit costs

Question 9

Corporations are responsible for approximately what percentage of total business revenues?

Accepted Answer

A)  19 percent 
B)  50 percent 
C)  72 percent 
D)  83 percent 
A)  19 percent 
B)  50 percent 
C)  72 percent 
D)  83 percent

Question 10

A proprietorship is a business

Accepted Answer

A)  with annual sales below $100,000. 
B)  in which the stock of the company is closely held by members of one family. 
C)  which produces a service rather than goods. 
D)  owned by one individual who is responsible legally for the debts of the firm. 
A)  with annual sales below $100,000. 
B)  in which the stock of the company is closely held by members of one family. 
C)  which produces a service rather than goods. 
D)  owned by one individual who is responsible legally for the debts of the firm.

Question 11

The opportunity cost of capital is

Accepted Answer

A)  an explicit cost. 
B)  a part of economic profits. 
C)  usually unknown and must be estimated by looking at the price of capital goods. 
D)  the normal rate of return. 
A)  an explicit cost. 
B)  a part of economic profits. 
C)  usually unknown and must be estimated by looking at the price of capital goods. 
D)  the normal rate of return.

Question 12

Which of the following is NOT a correct description of opportunity cost of capital?

Accepted Answer

A)  It is the normal rate of return on investment. 
B)  It is normally included in accounting costs. 
C)  It is the income sacrificed by not investing in another firm. 
D)  It is an implicit cost. 
A)  It is the normal rate of return on investment. 
B)  It is normally included in accounting costs. 
C)  It is the income sacrificed by not investing in another firm. 
D)  It is an implicit cost.

Question 13

For which type of organization is unlimited liability likely to be the greater problem-proprietorships or partnerships? Why?

Accepted Answer

Unlimited liability probably poses more

Question 14

Present value is

Accepted Answer

A)  the value of a future amount expressed in today's dollars. 
B)  the value of a dollar received a year from now, expressed in terms of its future value. 
C)  the inverse of the interest rate. 
D)  the nominal value instead of the real value of something. 
A)  the value of a future amount expressed in today's dollars. 
B)  the value of a dollar received a year from now, expressed in terms of its future value. 
C)  the inverse of the interest rate. 
D)  the nominal value instead of the real value of something.

Question 15

The nominal rate of interest is 3% and the anticipated rate of inflation is 4%. What is the real rate of interest?

Accepted Answer

A)  1% 
B)  -1% 
C)  4% 
D)  9% 
A)  1% 
B)  -1% 
C)  4% 
D)  9%

Question 16

If land is reallocated or switched from agricultural use to recreational use, then it is likely that

Accepted Answer

A)  food is not as important as recreation. 
B)  the demand for food is less today than in previous decades. 
C)  land earns a higher rent in recreational use than in agricultural use. 
D)  the demand curve for land in the agricultural industry is shifting to the right. 
A)  food is not as important as recreation. 
B)  the demand for food is less today than in previous decades. 
C)  land earns a higher rent in recreational use than in agricultural use. 
D)  the demand curve for land in the agricultural industry is shifting to the right.

Question 17

According to efficient market theory, which of the following can best predict the stock price of a particular company tomorrow?

Accepted Answer

A)  a finance professor who knows a lot of investment theory 
B)  a stock trader who has traded stocks for more than 10 years 
C)  that company's employee who has inside information about the company 
D)  none of the above: Everyone has an equal chance of predicting future stock prices. 
A)  a finance professor who knows a lot of investment theory 
B)  a stock trader who has traded stocks for more than 10 years 
C)  that company's employee who has inside information about the company 
D)  none of the above: Everyone has an equal chance of predicting future stock prices.

Question 18

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. Also, during that year inflation was 2.5%. The real interest rate is

Accepted Answer

A)  12.0 percent. 
B)  7.0 percent. 
C)  4.5 percent. 
D)  2.0 percent. 
A)  12.0 percent. 
B)  7.0 percent. 
C)  4.5 percent. 
D)  2.0 percent.

Question 19

Accounting profits are total revenues minus

Accepted Answer

A)  all relevant opportunity costs. 
B)  explicit and implicit costs. 
C)  explicit costs and all other relevant opportunity costs. 
D)  explicit costs. 
A)  all relevant opportunity costs. 
B)  explicit and implicit costs. 
C)  explicit costs and all other relevant opportunity costs. 
D)  explicit costs.

Question 20

A firm is considering three projects. Each costs $1 million now. Project A will yield $400,000 a year for three years, beginning one year from now. Project B will yield $1.25 million three years from now, and Project C will yield $600,000 for two years, beginning two years from now. If the interest rate is 8 percent, which of these projects should the firm undertake?

Accepted Answer

A)  Project A 
B)  Project B 
C)  Project C 
D)  none of these 
A)  Project A 
B)  Project B 
C)  Project C 
D)  none of these

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

The disadvantages of proprietorships include

Why is limited liability so important when firms try to raise large amounts of financial capital? How is this advantage of a corporation tied to a disadvantage of a corporation?

A business owned by two or more joint owners, or partners, who share the responsibilities and the profits of the firm and are individually liable for all the debts is a(n)

Dividends are

In which of the following ways can a corporation raise new funds for investment? I. Issuing new shares of stock II) Having existing stock resold between two owners

Suppose the best investment you could make with $200,000 in cash is to purchase a government bond that pays 10 percent interest per year. If you decide to invest the money in your own business instead of buying the government bond, the opportunity cost of this financial capital is

A payment for a resource above the opportunity cost of the resource is

Which of the following is the formula used for computing an accounting profit?

Corporations are responsible for approximately what percentage of total business revenues?

A proprietorship is a business

The opportunity cost of capital is

Which of the following is NOT a correct description of opportunity cost of capital?

For which type of organization is unlimited liability likely to be the greater problem-proprietorships or partnerships? Why?

Present value is

The nominal rate of interest is 3% and the anticipated rate of inflation is 4%. What is the real rate of interest?

If land is reallocated or switched from agricultural use to recreational use, then it is likely that

According to efficient market theory, which of the following can best predict the stock price of a particular company tomorrow?

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. Also, during that year inflation was 2.5%. The real interest rate is

Accounting profits are total revenues minus

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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