Economic

Q: Breakeven analysis is the method of determining the point at which sales will just cover ____ costs. a. labor b. inventory c. operating d. financing

Q: Which method estimates additional funds needed for a firm by projecting the assets needed for the coming and subtracting the projected liabilities spontaneously generated. a. Spontaneous method b. Additional funds needed method c. Feedback method d. Projected balance sheet method

Q: A constant-cost industry is one in whichA) output increases lead to productivity gains.B) the marginal product of labor is constant.C) there is no change in long-run per-unit costs, even as output varies. D) each firm has a horizontal long -run average cost curve.

Q: The firm is concerned with implementing the financial plans, and with managing the feedback and adjustment process needed to ensure that the goals of the firm are met during which stage of the planning and control process a. control stage b. planning stage c. forecasting stage d. budgeting stage

Q: In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm profit isA) $100. B) $70. C) $30. D) $130.

Q: What is the next step in the financial planning process after a firm develops a sales forecast? a. determine additional funds needed to finance operations b. determine the assets required to meet the sales target c. determine the firm's optimal capital structure d. estimate the degree of operating leverage

Q: If total costs are $50,000 when 1000 units are produced, and total costs are $50,100 when 1001 units are produced, we can conclude thatA) average variable costs are $100. B) average total costs are $100. C) average fixed costs are $100. D) marginal costs are $100.

Q: JT Inc. produces gourmet frozen dinners for the airline industry. JT has fixed costs of $200,000 and variable costs of $8 per frozen dinner. The selling price per frozen dinner is $13 and JT plans to sell 150,000 frozen dinners this year. If JT sells the 150,000 frozen dinners they planned to sell what will JT's operating profit be this year? a. $1,950,000 b. $1,750,000 c. $750,000 d. $550,000 e. $1,000,000

Q: When the Dutch East India Company was founded in 1602, it raised financial capital by issuing notes of indebtedness calledA) stocks. B) bonds. C) funds. D) notes.

Q: NJM Incorporated is a football manufacturer. NJM has fixed operating costs of $400,000 and variable costs of $12 per football. The footballs sell for $35 each and NJM plans to sell 300,000 footballs this year. What are NJM's total operating costs for the year? a. $10,900,000 b. $4,000,000 c. $3,600,000 d. $3,200,000 e. $400,000

Q: Accounting profit will always beA) more than economic profit. B) equal to sunk costs.C) less than economic profit. D) equal to implicit costs.

Q: Which of the following would generally be considered variable costs? a. Labor b. Rent c. Insurance d. Depreciation

Q: Observations of real-world situations that appear to violate a consumer optimum could be offered as evidence favoringA) utility analysis.B) bounded rationality.C) diminishing marginal utility.D) zero marginal utility at a utility-maximizing point.

Q: Silver King Inc. is currently running at 60 percent of full capacity. The plant and equipment are currently valued $125 million and Silver King generated sales of $90 million. What is the full capacity sales of Silver King with their current assets? a. $208 million b. $150 million c. $125 million d. $144 million e. $100 million

Q: What is utility and what are its characteristics?

Q: Warsaw Incorporated is currently operating at 80% of capacity. The sales of Warsaw were $25 million this year and their net plant and equipment were valued at $100 million. Sales are expected to increase to $35 million next year. How much additional plant and equipment will Warsaw need to acquire to keep production up with the new level of sales? a. $20 million b. $15 million c. $12 million d. $10 million e. No additional plant and equipment is needed.

Q: When the consumer spends a small portion of his income on a good, demand will beA) elastic.B) unit-elastic. C) inelastic.D) elastic, unit-elastic or inelastic depending upon supply.

Q: Which of the following liabilities increase typically and create spontaneously generated funds as sales increase for the firm? a. Long-term debt b. Accrued wages c. Accounts receivable d. Property, plant, and equipment

Q: Suppose that the nation wide average cost of air pollution generated by a car is $1,000. Would a tax of $1,000 on every car induce people to take external costs into consideration and bring about the optimal price and output for autos? Explain.

Q: To forecast the balance sheet, the firm must: a. Project the asset requirement for the coming period. b. Project the liabilities and equity that will be provided by normal operations. c. Estimate the additional funds needed. d. All of the above.

Q: The original impetus for Social Security was A) to provide retirement fund for all persons. B) to prevent future depressions. C) the result of social engineering by politicians. D) a proper response to the stock market crash of 1929.

Q: Forecasting financial requirements for a firm involves determining how much money the firm will a. generate internally. b. have to raise externally. c. need during a given period. d. All of the above.

Q: A monopsonist that wants to hire more labor must pay more for the new labor than it is currently paying and increase the wage rate of all existing employees becauseA) the demand curve for labor is inelastic. B) of labor unions.C) the supply of labor is upward sloping. D) of competition in the labor market.

Q: Underestimating the sales in your forecast could have which of the following effects on the firm? a. The firm could acquire too many fixed assets. b. The firm would have higher costs for depreciation and storage. c. The firm could lose market share to their competitors. d. The firm would have too high of a total asset turnover.

Q: Show how the profit-maximizing rule for hiring resources is equivalent to the cost -minimizing rule.

Q: Refer to Trident Food Corporation. What is the financial breakeven point for Trident Foods? a. EBIT = $146,500 b. Sales = 4,800 units c. EBIT = $10,000 d. Net income = $10,000 e. EBIT = $11,400

Q: The downward sloping marginal revenue product of labor isA) the firmʹs supply of labor.B) the firmʹs short-run demand for labor. C) the firmʹs marginal cost of labor.D) another term for the marginal revenue product of labor.

Q: Refer to Trident Food Corporation. What is the operating breakeven point in sales units (Q) for Trident Foods? a. 7,500 b. 5,625 c. 6,825 d. 4,800 e. 2,700

Q: The behavior of regulators when trying to win approval for their actions from their entire constituency is best described by theA) capture hypothesis.B) law of increasing social well-being.C) share-the-gains, share-the-pains hypothesis. D) marginal benefit pricing hypothesis.

Q: Refer to Trident Food Corporation. What is the degree of total leverage for Trident Foods? a. 42.86 b. 10.71 c. 71.43 d. 17.86 e. 6.43

Q: Positive market feedback refers to a tendency forA) potential entrants to an oligopolistic industry to respond to entry deterrence strategies by contemplating setting their prices above prices established by firms already in the industry.B) potential entrants to an oligopolistic industry to respond to entry deterrence strategies by contemplating producing more output than the quantities produced by firms already in the industry.C) a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product.D) price leaders to respond to an increase in market demand by increasing the prices of their products.

Q: Refer to Trident Food Corporation. What is the degree of operating leverage for Trident Foods? a. 2.78 b. 10.71 c. 3.86 d. 3.00 e. 4.00

Q: Average variable cost for an information product wouldA) first decrease and then increase as quantity increases.B) increase constantly as quantity increases. C) decrease constantly as quantity increases. D) remain constant as quantity increases.

Q: Hogan Inc. generated EBIT of $240,000 this past year using assets of $1,100,000. The interest rate on its existing long-term debt of $640,000 is 12.5 percent and the firm's tax rate is 40 percent. The firm paid a dividend of $1.27 on each of its 37,800 shares outstanding from net income of $96,000. The total book value of equity is $446,364 of which the common stock account equals $335,000. The firm's shares sell for $28.00 per share in the market. The firm forecasts a 10% increase in sales, assets, and EBIT next year, and a dividend of $1.40 per share. If the firm needs additional capital funds, it will raise 60% with debt and 40% with equity. The cost of any new debt will be 13%. Spontaneous liabilities are estimated at $15,000 for next year, representing an increase of 10% over this year. Except for spontaneous liabilities, the firm uses no other sources of current liabilities and will continue this policy in the future. What will be the cumulative AFN Hogan will need to balance its projected balance sheet using the projected balance sheet method through the first two passes? a. $5,013 b. $3,417 c. $51,156 d. $26,228 e. $54,573

Q: Products can be differentiatedA) if the buyers are homogeneous and their number increases. B) by location and by brand name.C) only by brand name. D) none of the above

Q: Carolina Vineyards is considering two alternative production methods for turning grapes into wine. One method calls for using a hand-operated press, while the other would employ a new, automated press. It has been estimated that the variable cost per bottle will amount to $2.00 using the old press and $0.50 using the new machine. If the new machine is purchased, fixed operating costs will equal $150,000, and interest charges will be $80,000. Fixed operating costs of $25,000 will be incurred if the company decides to use the old press, and interest costs will be zero because no debt will be needed. Assume that sales (in units) will be 100,000 bottles under the automated method and 75,000 units under the labor intensive method. What sales price per unit would cause Carolina to be indifferent between the two methods? a. $2.00 b. $2.20 c. $4.00 d. $4.20 e. $6.00

Q: If a monopolist were to produce in the inelastic segment of its demand curve, A) total revenue would be at a maximum.B) total revenue would be at a minimum. C) the firm would maximize profits.D) a further drop in the price will change quantity demanded less than proportionately.

Q: If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expectA) only the market price of the good to increase.B) both the market price and quantity supplied to increase.C) decreases in the market price, but increases in quantity supplied. D) only the quantity supplied of the product to increase.

Q: Musgrave Corporation has fixed operating costs of $46,000 and variable costs that are 30% of the current sales price of $2.15. At a price of $2.15, Musgrave sells 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95, but variable cost per unit won't change. Should it cut its price? a. No, EBIT decreases by $6,000. b. No, EBIT decreases by $250. c. Yes, EBIT increases by $11,500. d. Yes, EBIT increases by $8,050. e. Yes, EBIT increases by $5,050.

Q: Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable cost per book will drop by $1. Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even? a. $600,000 b. $466,667 c. $333,333 d. $200,000 e. None of the above.

Q: In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost isA) $10.B) $3.C) $7. D) $70.

Q: Hensley Corporation uses breakeven analysis to study the effects of expansion projects it considers. Currently, the firm's plastic bag business segment has fixed operating costs of $120,000, while its unit price per carton is $1.20 and its variable unit cost is $0.60. The firm is considering a new bag machine and an automatic carton folder as modifications to its existing production lines. With the expansion, fixed costs would rise to $240,000, but variable cost would drop to $0.41 per unit. One key benefit is that Hensley can lower its wholesale price to its distributors to $1.05 per carton (i.e., its selling price), and this would likely more than double its market share, as it will become the lowest cost producer. What is the change in the operating breakeven volume with the proposed project? a. 100,000 units b. 175,000 units c. 75,000 units d. 200,000 units e. 0 units

Q: Refer to the above table. What are total costs at an output of 3 units?A) $90 B) $120 C) $150 D) $270

Q: Compuvac Company has just completed its first pass forecast using the projected balance sheet method. The firm has determined that it needs $4 million in new debt which can be sold at par with a 10% annual coupon. Additionally, the firm will sell 500,000 shares of new common equity at $18.10 per share. Next year's expected dividend is $0.48 per share. The firm expects that taxes will be $160,000 less under the second pass than they were under the first pass based on a 40% tax rate. Given this information, what is the incremental change in AFN for Compuvac going from the first pass to the second pass? a. $240,000 b. $0 c. $480,000 d. $160,000 e. $640,000

Q: If you own 500 shares of preferred stock, how many regular votes would you get to cast at the next stockholders meeting?A) 500 B) 250 C) 1 D) 0

Q: A firm has the following balance sheet: Cash $ 20 Accounts payable $ 20 Accounts receivable 20 Notes payable 40 Inventory 20 Long-term debt 80 Fixed assets 180 Common stock 80 Retained earnings 20 Total assets $240 Total liabilities and equity $240 Sales for the year just ended were $400, and fixed assets were used at 80 percent of capacity, but its current assets were at optimal levels. Sales are expected to grow by 5 percent next year, the profit margin is 5 percent, and the dividend payout ratio is 60 percent. How much additional funds (AFN) will be needed? a. $4.6 b. −$6.4 (Surplus) c. $2.4 d. −$4.6 (Surplus) e. $0.8

Q: Economic profits are A) the same as accounting profits when firms do not own capital equipment. B) always greater than accounting profits. C) equal to accounting profits plus the implicit costs of the firm. D) whatever remains after all opportunity costs have been taken into account.

Q: You are the owner of a small business which has the following balance sheet: Current assets $ 5,000 Accounts payable $ 1,000 Net fixed assets 10,000 Accruals 1,000 Long-term debt 5,000 Common equity 8,000 Total assets $15,000 Total $15,000 Fixed and current assets are fully utilized, and the sales/assets and sales/spontaneous liabilities ratios will remain constant. Next year you expect sales to increase by 50 percent. You also expect to retain $2,000 of next year's earnings within the firm. What is next year's additional external funding requirement, i.e., what is your firm's AFN? a. No additional funds are required. b. $3,500 c. $4,500 d. $5,500 e. The answer depends on this year's sales level.

Q: Because the behavioral economics approach suggests many alternative behaviors that people might exhibit if they fail to behave as if they are rational, this approachA) often fails to provide clearly testable behavioral predictions. B) reproduces the same predictions as utility analysis.C) has an over reliance on the rationality assumption. D) ignores the possibility of bounded rationality.

Q: Texas Products Inc. has a division which makes burlap bags for the citrus industry. The unit has operating fixed costs of $10,000 per month, and it expects to sell 42,000 bags per month. If the variable cost per bag is $2.00, what price must the division charge in order to break even? a. $2.24 b. $2.47 c. $2.82 d. $3.15 e. $2.00

Q: The utility analysis theory assumes that consumers try toA) maximize their average utility.B) maximize their marginal utility.C) maximize the difference between total and marginal utility.D) maximize their total utility.

Q: The Price Company will produce 55,000 widgets next year. Variable costs will equal 40 percent of sales, while operating fixed costs will total $110,000. At what price must each widget be sold for the company to achieve an EBIT of $95,000? a. $2.00 b. $4.45 c. $5.00 d. $5.37 e. $6.21

Q: When the consumer spends over 50% of her income on a good, demand will beA) elastic.B) unit-elastic. C) inelastic.D) elastic, unit-elastic or inelastic depending upon supply.

Q: Jill's Wigs Inc. had the following balance sheet last year: Cash $ 800 Accounts payable $ 350 Accounts receivable 450 Accrued wages 150 Inventory 950 Notes payable 2,000 Net fixed assets 34,000 Mortgage 26,500 Common stock 3,200 Retained earnings 4,000 Total assets $36,200 Total liabilities and equity $36,200 Jill has just invented a non-slip wig for men which she expects will cause sales to double, increasing after-tax net income to $1,000. She feels that she can handle the increase without adding any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much? a. No; zero b. Yes; $7,700 c. Yes; $1,700 d. Yes; $700 e. No; there will be a $700 surplus.

Q: To correct for the social impact of pollution, the government should levy a per -unit taxA) that is the same for all polluters regardless of their locations or sizes.B) according to the economic damage of the pollution. C) according to the business activity of the polluter.D) only to those polluters that can afford to pay for the tax.

Q: Which of the following statements is correct? a. Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), so depreciation is set forth on a separate line in the cash budget. b. If cash inflows and cash outflows occur on a regular basis, such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10th of each month, then it is not necessary to use a daily cash budget. A cash budget prepared at the end of the month will suffice. c. Cash budgets are more important for fast food retailers, such as McDonald's, which deal primarily with cash than for manufacturers, such as General Motors, that generally sell on credit. d. When constructing a cash budget, it probably is easier to forecast cash inflows than cash outflows. e. All of the above statements are false.

Q: Since Social Security is a pay-as-you-go program, the funds for the people retiring todayA) come from those of us working today and in the future.B) come from the Federal Reserve. C) come from import taxes.D) come from foreign sales of gold.

Q: Which of the following statements about cash management is false? a. Depreciation expense does not appear explicitly on the cash budget, but its tax effects are included. b. If cash flows are not uniform during the month, then weekly or perhaps daily cash budgets should be prepared rather than monthly budgets. c. Compensating balance requirements do not affect a firm's target cash balance. d. Cash management involves costs, and it is important to analyze whether the benefits received outweigh the costs included. e. The cash budget is the foundation of good cash management.

Q: The supply curve of labor to a monopsonist is A) upward sloping. B) downward sloping because of the law of diminishing marginal returns. C) downward sloping, but not because of the law of diminishing marginal returns. D) horizontal.

Q: For a firm that uses land, labor and capital as inputs, how should the inputs be utilized in order to minimize total costs?

Q: Which of the following statements is correct? a. The first pass using the projected balance sheet method determines the financing feedback effects and determines how much in additional funds are needed. The second pass completes the cycle, identifies the full financing need, and eliminates further feedback effects. b. Interest expense on additional new debt is the only income statement account affected by financing feedback, and dividends payable to new common stock is the only balance sheet account affected. c. The projected balance sheet method is useful for determining additional funds needed, however, it cannot be used in evaluating dividend policy and capital structure decisions. d. One reason a firm's managers may choose to meet additional funds needed requirements through common stock is that it involves no financing feedback effects. Since no new debt is used, interest expense will be considered fully in the first pass, the income statement will remain unchanged, and no second pass is needed. e. If new debt and new stock are used to meet new financing needs, net income will decrease from the first pass to the second pass even though taxes decrease. In addition, if dividends are to be paid on new stock, this will further decrease the amount of retained earnings available for financing needs.

Q: Other things held constant, which of the following statements is correct if a firm currently is operating at its financial breakeven point? a. EBIT must be greater than zero. b. EBIT would equal zero if the firm is financed only with common stock (i.e., there is no debt or preferred stock). c. EBIT would equal zero, hence EPS would be less than zero, if the firm has preferred stock but no debt. d. EPS would equal zero only if the firm is financed with some amount of debt. e. The firm would not be considered to have much financial risk, especially when compared to a firm that operates well above its financial breakeven point.

Q: The marginal physical product (MPP) is calculated byA) dividing total physical product by labor.B) dividing the change in total physical product by the change in the input.C) dividing the change in total cost by the change in labor.D) the difference between the output of skilled and unskilled workers.

Q: If a firm's degree of total leverage (DTL) is 8.0, which of the following must be correct? a. The firm must have fixed operating costs. b. The firm must have fixed financial costs. c. The firm must have both fixed operating costs and fixed financial costs. d. The firm must have some fixed costs, but not enough information is given to determine whether the fixed costs are operating, financial, or both. e. With the information given, we cannot tell whether the firm has any fixed costs (either operating or financial) at all.

Q: The hypothesis that regulators eventually are controlled by the regulated firms and their special interests is theA) share-the-gains, share-the-pains hypothesis. B) capture hypothesis.C) public interest theory.D) control-group hypothesis.

Q: The degree of financial leverage has which of the following characteristics? a. The closer the firm is operating to its financial breakeven point, the smaller the DFL. b. Other things held constant, if a firm has fixed financial costs, such as interest, a change in EBIT will result in an equivalent change in EPS. c. For a particular firm, the DFL is not a fixed number⎯its value depends on the level of operations and the fixed financial costs associated with those operations. d. The DFL relates the change in EBIT to the change in sales. e. If a firm has common stock, it is impossible for its DFL to equal 1.0.

Q: Negative market feedback refers to a tendency forA) one or two firms in an oligopolistic industry to respond to price decreases by initiating efforts to engage in price leadership.B) a particular product to fall out of favor with additional consumers because other consumers have stopped purchasing the product.C) the dominant firm in an oligopolistic industry to react to competing firmsʹ price increases by decreasing the price of its own product.D) price wars to break out in oligopolistic industries in which firms produce products possessing characteristics that make them prone to network effects.

Q: The degree of financial leverage for Aries Inc. is 3.0, and the degree of financial leverage for Common Capital Corporation is 6.2. According to this information, which firm is considered to have greater overall (total) risk? a. Aries Inc. b. Common Capital Corporation. c. The degree of financial leverage is a measure of financial risk, so the only conclusion that can be made with the information given is that Common Capital Corporation has greater financial risk than Aries Inc.⎯ we cannot tell which firm has greater total risk. d. To determine which firm has the greater total risk, we need to know the financial breakeven point of each firm. e. None of the above is a correct answer.

Q: An information product is a product for whichA) the first item is produced inexpensively but additional units are more costly to produce.B) the first unit is very costly to make but additional units are less costly to produce.C) the marginal cost first falls and then rises but the average total cost rises throughout its range.D) the average fixed cost first falls and then rises, but the average total cost falls throughout its range.

Q: The degree of operating leverage has which of the following characteristics? a. The closer the firm is operating to breakeven quantity, the smaller the DOL. b. A change in quantity demanded will produce the same percentage change in EBIT as an identical change in price per unit of output, other things held constant. c. The DOL is not a fixed number for a given firm, but will depend upon the time zero values of the economic variables Q (Quantity), P (Price), and V (Volume). d. The DOL relates the change in net income to the change in net operating income. e. If the firm has no debt, the DOL will equal 1.

Q: The distinguishing of products by brand name, color, and other attributesA) is known as interdependence. B) is known as product differentiation.C) leads to many firms in the market. D) leads to collusion.

Q: Which of the following statements is correct? a. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. b. The projected balance sheet method of forecasting financial needs requires only a forecast of the firm's balance sheet. Although a forecasted income statement helps clarify the financing needs, it is not essential to the balance sheet method. c. Because dividends are paid after taxes from retained earnings, dividends are not included in the projected balance sheet method of forecasting. d. The projected balance sheet method forces recognition of the fact that new financing creates additional financial obligations. For instance, new financing can increase expenses which can actually decrease taxes but increase the projected financial need. e. Financing feedback describes the effect on the firm's stock price of the announcement that the firm will sell new equity or debt to raise needed capital.

Q: The monopolist should NEVER produce in theA) elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price.B) inelastic segment of its demand curve because further lowering of the price reduces total revenue.C) range of output for which the price elasticity of demand is infinity.D) range of output for which there is a price elasticity exceeding one.

Q: Holding other things constant, the additional funds required for financing the firm's operations would be reduced with an increase in the firm's a. Dividend payout ratio. b. Profit margin. c. Cost of external funds. d. Expected growth rate in sales. e. Tax rate.

Q: If an industryʹs long-run per-unit costs are constant as its output increases thenA) the firmʹs long-run economic profits must be greater than zero. B) the firm is most likely a decreasing-cost industry.C) the firm is most likely an increasing -cost industry. D) the firm is most likely a constant-cost industry.

Q: In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total cost isA) $100. B) $70. C) $30. D) $130.

Q: Considering each action independently and holding other things constant, which of the following actions would reduce the firm's need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the profit margin. c. A decrease in the days sales outstanding. d. An increase in expected sales growth. e. A decrease in the accrual accounts (accrued wages and taxes).

Q: Which of the following is (are) typically part of the cash budget? a. Payments lag. b. Payment for plant construction. c. Cumulative cash. d. All of the above. e. Only answers a and c above.

Q: Refer to the above table. What are total variable costs at an output of 3 units?A) $90 B) $120 C) $150 D) $270

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