Question 1

If Lady Gaga insists that tickets to her concert be sold for $100 each rather than the $500 each that could be charged as reflected by demand for those tickets,then the result will be

Accepted Answer

A)  to create an excess supply of tickets.
B)  to eliminate $150 worth of economic rent per ticket.
C)  that part of the economic rent will be dissipated by scalpers,radio station owners,etc..
D)  that the demand for tickets will decrease.E) B) and D)
F) A) and D)

Question 2

The double taxation of corporate profit in the United States refers to the fact that

Accepted Answer

A)  tax rates on partnerships are very high.
B)  depreciation is not a deductible expense.
C)  corporate profit is first taxed and then any dividends paid are subject to personal income tax.
D)  proprietorships are not subject to any tax on earnings.E) A) and D)
F) None of the above

Question 3

Economic rent applies to

Accepted Answer

A)  land only and nothing else.
B)  real property only.
C)  all resources.
D)  any resource in fixed supply.E) All of the above
F) B) and D)

Question 4

The value of a future amount expressed in today's dollars is

Accepted Answer

A)  the interest rate.
B)  present value.
C)  the discount rate.
D)  the inflation rate.E) None of the above
F) A) and D)

Question 5

If a corporation fails,the last recipients of funds that may remain are

Accepted Answer

A)  preferred stockholders.
B)  common stockholders.
C)  bond holders.
D)  government tax collectors.E) B) and C)
F) None of the above

Question 6

What is the present value of $100 three years from now at an interest rate of 5%?

Accepted Answer

A)  $85
B)  $115.76
C)  $90.70
D)  $86.38E) C) and D)
F) B) and D)

Question 7

Comparing proprietorships with partnerships,which is true?

Accepted Answer

A)  In both cases,profits are taxed only once.
B)  Partnerships outnumber proprietorships 2-to-1 in the United States.
C)  Proprietorships generally end with the death of the owner,but partnerships continue as long as at least one partner survives.
D)  A proprietor faces unlimited liability for her firm's debts,but in a partnership each partner is only responsible for an even share of the firm's indebtedness.E) All of the above
F) None of the above

Question 8

A star basketball player signs a contract that newspaper reports indicate is worth $10 million.The player receives $2 million upon signing,and $2 million every year for four years.The contract is worth

Accepted Answer

A)  less than $10 million since the present value of $2 million received one or more years from now is less than $2 million.
B)  more than $10 million since the present value of $2 million received one or more years from now is more than $2 million.
C)  $10 million as reported in the press.
D)  some amount around $10 million.To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest.E) B) and C)
F) None of the above

Question 9

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 ratioE) A) and B)
F) B) and C)

Question 10

Stocks are

Accepted Answer

A)  promises to repay loans.
B)  a liability of a proprietorship.
C)  a liability of a corporation.
D)  shares of ownership in a corporation.E) None of the above
F) A) and C)

Question 11

A long-term loan that is given to a firm is known as a

Accepted Answer

A)  share of stock.
B)  bond.
C)  dividend.
D)  random walk.E) All of the above
F) B) and C)

Question 12

Implicit costs are measured by

Accepted Answer

A)  the value of the next-best alternative uses of inputs.
B)  actual expenses paid by a firm.
C)  total revenues minus total costs.
D)  the lowest value of all alternative uses of inputs.E) A) and B)
F) None of the above

Question 13

Suppose your donut shop earns $24,000 in total revenues per month with explicit costs of $12,000 and opportunity costs of $8,000.Your accounting profit is

Accepted Answer

A)  $16,000.
B)  $12,000.
C)  $4,000.
D)  zero.E) All of the above
F) A) and D)

Question 14

By definition,a proprietorship is

Accepted Answer

A)  owned by many shareholders.
B)  a large manufacturing concern.
C)  owned by a single individual.
D)  managed by a large group called the "board of directors."E) All of the above
F) B) and D)

Question 15

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.E) None of the above
F) All of the above

Question 16

The most important source of financial capital for firms today is

Accepted Answer

A)  sale of bonds.
B)  sale of new issues of stock.
C)  trade of previously issued stock.
D)  reinvestment of profits.E) A) and B)
F) A) and C)

Question 17

Efficient markets theory suggests that purchasing the published reports of financial analysts

Accepted Answer

A)  is likely to increase one's returns by an average of 5 percent.
B)  is likely to increase one's returns by an average of about 3 to 5 percent.
C)  is not likely to increase financial returns.
D)  will increase financial returns in the first year but not in following years.E) A) and B)
F) A) and C)

Question 18

Which of the following statements about stock market brokers and dealers is TRUE?

Accepted Answer

A)  Brokers earn commissions from trading stocks but dealers try to profit from trading stocks.
B)  Brokers try to profit from trading stocks but dealers earn commissions from trading stocks.
C)  Both brokers and dealers earn commissions from trading stocks.
D)  Both brokers and dealers try to profit from trading stocks.E) None of the above
F) A) and D)

Question 19

In comparing accounting profit with economic profit,we generally find that

Accepted Answer

A)  accounting profit is less than economic profit.
B)  economic profit and accounting profit are the same in the short run.
C)  accounting profit is greater than or equal to economic profit.
D)  economic profit exceeds accounting profit by the amount of opportunity costs.E) B) and C)
F) A) and D)

Question 20

Corporations are able to raise large amounts of financial capital because

Accepted Answer

A)  of the tax breaks corporations are given relative to partnerships or proprietorships.
B)  of the elimination of the problem of separation of ownership and control.
C)  of limited liability and the treatment of a corporation as an individual entity.
D)  of their greater ability to monitor the performance of decision makers.E) B) and C)
F) A) and D)

Exam 8: Rents, profits, and the Financial Environment of Business

The most important source of financial capital for firms today is

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The double taxation of corporate profit in the United States refers to the fact that

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Comparing proprietorships with partnerships,which is true?

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

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If Lady Gaga insists that tickets to her concert be sold for $100 each rather than the $500 each that could be charged as reflected by demand for those tickets,then the result will be

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Corporations are able to raise large amounts of financial capital because

Correct AnswerverifiedShow Answer

In comparing accounting profit with economic profit,we generally find that

Correct AnswerverifiedShow Answer

Suppose your donut shop earns $24,000 in total revenues per month with explicit costs of $12,000 and opportunity costs of $8,000.Your accounting profit is

Correct AnswerverifiedShow Answer

Stocks are

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Which of the following statements about stock market brokers and dealers is TRUE?

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Economic rent applies to

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Efficient markets theory suggests that purchasing the published reports of financial analysts

Correct AnswerverifiedShow Answer

Implicit costs are measured by

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By definition,a proprietorship is

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The value of a future amount expressed in today's dollars is

Correct AnswerverifiedShow Answer

A proprietorship is

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If a corporation fails,the last recipients of funds that may remain are

Correct AnswerverifiedShow Answer

A star basketball player signs a contract that newspaper reports indicate is worth $10 million.The player receives $2 million upon signing,and $2 million every year for four years.The contract is worth

Correct AnswerverifiedShow Answer

What is the present value of $100 three years from now at an interest rate of 5%?

Correct AnswerverifiedShow Answer

A long-term loan that is given to a firm is known as a

Correct AnswerverifiedShow Answer

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