352)
Bonnie is debating whether to take a job as a professional therapist or a florist. She will earn $40,000
a year as a therapist or $30,000 a year as a florist. If she chooses to be a therapist, the opportunity
cost is
352)
A)
$30,000.
B)
$10,000.
C)
$40,000.
D)
unable to determine.
353)
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 four years?
353)
A)
B)
C)
$190,000
D)
354)
Which of the following characteristics is NOT likely to increase the interest on a loan?
354)
A)
a non–creditworthy borrower
B)
a short–term loan
C)
a larger dollar loan
D)
a high–risk proposal
355)
Present value is
355)
A)
lower the longer the time horizon.
B)
not expressed in today‘s dollars.
C)
opposite the time value of money.
D)
unrelated to the rate of interest.
356)
Bond coupon payments represent
356)
A)
dividends paid to owners.
B)
capital gains for tax purposes.
C)
interest on the amount borrowed.
D)
payments to preferred shareholders.
357)
Of the owners of the following firms, which does not have unlimited liability for the business’
debts?
357)
A)
the Huber Corporation
B)
the partnership of Reese and Jones, Attorneys–at–Law
C)
Roy Ray’s Grocery Store, Roy Ray, proprietor
D)
Wren’s Feed and Seed Store, a proprietorship
358)
An advantage of the corporate form of business organization is
358)
A)
easier access to capital.
B)
that profits are taxed only on one level.
C)
unlimited liability.
D)
government supervision of its activities.
A
359)
If you want to vote for the management of the corporation, you should buy
359)
A)
common stock.
B)
bonds.
C)
preferred stock.
D)
either common stock or preferred stock.
A
360)
When a business is owned and operated by a single individual who receives all of the profits and is
responsible for all debts, it is known as a
360)
A)
B)
C)
conglomerate.
D)
A
361)
A business which is owned by two or more people is called a
361)
A)
partnership.
B)
proprietorship.
C)
corporation.
D)
none of the above.
A
A
362)
Which statement is FALSE considering both advantages and disadvantages of corporations as a
legal business organization?
362)
A)
Legally the corporation continues to exist even if one or more owners cease to be owners.
B)
Corporations usually are not as well positioned as proprietorships and partnerships to raise
large sums of financial capital.
C)
Separation of ownership and control is a disadvantage of the corporate structure; owners and
managers may have different incentives.
D)
Perhaps the greatest advantage of corporations is that their owners (the shareholders) enjoy
limited liabilitylimited to the value of their shares.
363)
Compared to a proprietorship, an advantage of a partnership is
363)
A)
double taxation.
B)
the ability to take advantage of greater specialization.
C)
that profits are not taxed twice.
D)
the limited liability of the partners.
364)
If land is reallocated or switched from agricultural use to recreational use, then it is likely that
364)
A)
the demand for food is less today than in previous decades.
B)
land earns a higher rent in recreational use than in agricultural use.
C)
the demand curve for land in the agricultural industry is shifting to the right.
D)
food is not as important as recreation.
365)
Financial capital is
365)
A)
assets of financial institutions.
B)
the foreign exchange market.
C)
the collection of stock and bond exchanges around the country.
D)
funds used to purchase capital goods.
366)
What is the future value of $1,000 in three years if the rate of discount is equal to 5 percent?
366)
A)
B)
C)
$1,157.63
D)
367)
Owner–provided capital and owner–provided labor are examples of
367)
A)
implicit costs.
B)
accounting costs.
C)
explicit costs.
D)
normal rate of return.
368)
The owners of preferred stock
368)
A)
have the same rights as bondholders.
B)
are the original owners of the corporation.
C)
receive preferential treatment in the payment of dividends.
D)
have the same voting rights as owners of common stock.
369)
When a resource has a perfectly inelastic supply curve
369)
A)
the amount of economic rent for this resource is determined by demand for the resource.
B)
the amount of economic rent for this resource is determined by the government.
C)
the amount of economic rent for this resource is determined by its supply.
D)
there is no economic rent being earned by this resource.
370)
The ABC Corporation earned a real rate return of 4.5 percent on an investment. In the economy, the
nominal rate of interest was 6 percent and the rate of inflation was 3 percent. We can conclude that
370)
A)
the real rate of interest was 9 percent.
B)
the real rate of interest was 1.5 percent.
C)
the investment was profitable.
D)
the investment was unprofitable.
371)
An advantage of the proprietorship as a form of business organization is
371)
A)
that it is easy to form.
B)
that it can sell bonds to the public.
C)
its limited liability.
D)
its limited access to capital, thus reducing the possible size of debt.
372)
The interest rate used to bring future sums back to present value is
372)
A)
always negative.
B)
the rate of discount.
C)
the prime rate.
D)
zero when there is no inflation.
373)
The general form for discounting is
373)
A)
PV = 1/(1 + it)t.
B)
PV = (1 + i)t/
FVt.
C)
PV = FVt /(1 + i)t.
D)
PV = FVt * (1 + i)t.
374)
The opportunity cost of capital is
374)
A)
the rate of return that could be earned by the owner’s capital were it used elsewhere.
B)
the rate used to calculate a firm’s tax liability.
C)
the rate of interest the government uses to calculate legal business tax penalties.
D)
the rate of return realized on an investment.
375)
Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450.
The interest rate is
375)
A)
B)
C)
8.0 percent.
D)
376)
Limited liability is a characteristic of
376)
A)
partnerships and proprietorships only.
B)
proprietorships only.
C)
partnerships only.
D)
corporations only.
377)
The real interest rate is the
377)
A)
nominal interest rate minus the anticipated inflation rate.
B)
nominal interest rate plus the anticipated inflation rate.
C)
nominal interest rate plus the anticipated interest rate.
D)
nominal interest rate minus the anticipated interest rate.
378)
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?
378)
A)
B)
C)
Project C
D)
379)
In analyzing land rent, David Ricardo constructed a model based on
379)
A)
the supply of land being perfectly inelastic.
B)
land being available in infinite quantities.
C)
perfectly elastic demand for land.
D)
a perfectly elastic supply of land.
380)
Mary and Jane are partners in a business. Their business is growing but has not yet reached the
point where they can afford a new delivery truck. Jane owns an old truck that she has not been
using. She decides to donate it to their business for free.
380)
A)
This transaction involves economic cost but no accounting cost.
B)
This transaction (donation) involves no economic cost.
C)
This transaction involves no economic cost and no accounting cost.
D)
This transaction involves both economic cost and accounting cost.
381)
George is debating whether to concentrate on playing professional football or professional baseball.
He is offered $6 million a year to play baseball and $7 million a year to play football. If he chooses
to play football
381)
A)
the economic rent in his salary is $6 million.
B)
the economic rent in his salary is $1 million.
C)
the economic rent in his salary is $7 million.
D)
the economic rent in his salary is $13 million.
382)
Joanne left her last job, in which she was earning $50,000, in order to form her own consulting
business. Her revenues for the first year of consulting were $210,000. During that year, she hired
two assistants for $25,000 each and spent $25,000 on office equipment. In addition, she incurred
$75,000 in miscellaneous expenses. Her accounting profit that first year was
382)
A)
B)
C)
$210,000.
D)
383)
The most likely source of investment funds for a proprietorship is
383)
A)
sales of stocks.
B)
the personal funds of the owner.
C)
sales of bonds.
D)
loans from banks.
384)
Which of the following is not an advantage of a partnership?
384)
A)
the legal paperwork needed to form a partnership
B)
separation of partner’s duties
C)
the issue of liability
D)
the taxation of profits
385)
Suppose the best investment you could make with $100,000 in cash is to purchase a government
bond that pays 14 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
385)
A)
$100,000 per year.
B)
zero, because you already had the $100,000.
C)
$1,400 per year.
D)
$14,000 per year.
386)
Interest can be defined as
386)
A)
the return paid to owners of capital.
B)
the participation of a shareholder in the operations of a firm.
C)
the amount of funds loaned to a creditor.
D)
the return above opportunity cost paid to owners of a firm.
387)
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?
387)
A)
B)
C)
$133,000
D)
388)
A firm is making zero economic profits. From this, we know that
388)
A)
the firm is going to stay in business, but will not be able to attract new financial capital.
B)
the firm is going to go out of business.
C)
implicit costs are zero.
D)
the firm will stay in business since it is covering all relevant opportunity costs.
389)
Suppose that during a given time period the implicit cost for a business was $1,000 and that the
explicit cost was $5,000. Also suppose that the firm sold 1,000 units of its products at $5 per item.
We can conclude that the firm’s
389)
A)
accounting profit was $5,000, and its economic profit was $0.
B)
accounting profit was $0, and economic profit was –$1,000.
C)
accounting and economic profits were both $0.
D)
accounting profit was $0, and economic profit was $1,000.
390)
Which of the following is the formula used for computing economic profits?
390)
A)
economic profits = total revenue – explicit costs
B)
economic profits = total costs – total revenue
C)
economic profits = total revenue – (implicit costs + explicit costs)
D)
economic profits = total revenue – implicit costs
391)
If the interest rate is 3 percent per year and you borrow $100 for one year, at the end of the year you
must pay back
391)
A)
B)
C)
$3.
D)
392)
The part of corporate profits that is paid to the shareholders of a corporation is
392)
A)
shareholders.
B)
retained earnings.
C)
dividends.
D)
business revenue.
393)
A singer would willingly perform in a concert for $100,000. If she is paid $500,000 for the concert,
she is
393)
A)
receiving $400,000 of economic rent.
B)
not being paid her full opportunity cost.
C)
receiving $500,000 to cover her opportunity cost.
D)
certainly being paid more than warranted by the level of demand.
A
394)
A person starts her own business. She quits her $40,000 a year job, rents an office for $15,000 a year,
pays wages and salaries of $50,000 a year, utilities of $4,000 a year, and materials of $20,000. She
uses her own car for sales work rather than leasing an equivalent car for $6000 a year. If revenues
are $140,000, her accounting profit and economic profit are respectively
394)
A)
$51,000 and $45,000.
B)
$51,000 and $5000.
C)
$45,000 and $11,000.
D)
$45,000 and $5000.
B
395)
A payment for the use of any resource over and above its opportunity cost is called
395)
A)
economic rent.
B)
normal cost.
C)
economic profit.
D)
accounting profit.
A
C
396)
Comparing proprietorships with partnerships, which is TRUE?
396)
A)
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.
B)
Proprietorships generally end with the death of the owner, but partnerships continue as long
as at least one partner survives.
C)
In both cases, profits are taxed only once.
D)
Partnerships outnumber proprietorships 2–to–1 in the United States.
397)
Exchanges of stocks take place
397)
A)
in centralized physical locations known as stock exchanges and online through Internet
brokers.
B)
in the principle financial city of each country, such as New York City for the United States
and London for England.
C)
in a decentralized fashion around the world.
D)
in New York City only.
398)
A company raises funds by selling 5 million shares of common stock to 5,000 shareholders and $1
million bonds to 1,000 bondholders. The number of individuals who vote for the company’s board
of directors is
398)
A)
B)
C)
5,000,000.
D)
399)
The majority of business revenues earned in the United States are earned by
399)
A)
proprietorships.
B)
partnerships.
C)
cooperatives.
D)
corporations.
400)
A normal rate of return on investment is equal to
400)
A)
accounting profit plus economic profit.
B)
accounting profit minus economic profit.
C)
the opportunity cost of capital plus any other implicit costs.
D)
total revenue plus total accounting profit
401)
If the explicit costs to a firm to produce a unit of output are $6 and the firm sells 200,000 units of
output for $9 per unit, the accounting profit received by the producer is
401)
A)
B)
C)
$1.2 million.
D)
A
402)
Another term to describe the normal rate of return on capital is the
402)
A)
opportunity cost of capital.
B)
monopoly rent.
C)
depreciation cost of capital.
D)
fixed cost of capital.
A
403)
In most cases, the higher is the quality of the collateral for a loan is
403)
A)
the lower is the interest rate.
B)
the riskier is the loan.
C)
the higher is the interest rate.
D)
the greater is the handling charge for the loan.
A
C
404)
Superstars in sports or entertainment presumably would be willing to continue working in their
specific areas for lower income than they are currently earning. This implies that
404)
A)
superstars do not respond to monetary incentives.
B)
the large salaries serve no allocative function and only serve to make the superstars richer.
C)
the high salaries are used to allocate their time but fail to bring in new sources of supply
(other superstars) that are exactly like themselves.
D)
superstars are exploiting their fans by receiving such a large salary.
405)
Suppose Jon Stewart of the “Daily Show” makes an annual income of $1,000,000. If he quit his
television job and went into producing he could make $400,000 per year. Jon Stewart’s annual
economic rent to labor is
405)
A)
B)
C)
$400,000.
D)
406)
Economic profits are
406)
A)
the same as accounting profits when firms do not own capital equipment.
B)
whatever remains after all opportunity costs have been taken into account.
C)
equal to accounting profits plus the implicit costs of the firm.
D)
always greater than accounting profits.
407)
When the supply curve of a resource is vertical, then the return to the resource owner is
407)
A)
partly economic rent and partly opportunity costs.
B)
zero.
C)
pure economic rent.
D)
partly economic rent and partly profits.
408)
The concept of limited liability
408)
A)
does not apply to a corporation.
B)
means that owners of a firm are subject to double taxation.
C)
limits the amount of specialization that can occur in a firm.
D)
means that the owners of a corporation have liability limited to the value of the shares in the
firm.
409)
Refer to the above figure. What can we say about economic rent?
409)
A)
Economic rent equals the area IJK0.
B)
Economic rent equals the area HJI.
C)
Economic rent equals the area HJK0.
D)
There is no economic rent represented in the figure.
410)
By definition, a proprietorship is
410)
A)
managed by a large group called the “board of directors.”
B)
a large manufacturing concern.
C)
owned by many shareholders.
D)
owned by a single individual.
411)
If the interest rate is 5 percent per year and you borrow $100 for two years, at the end of the second
year you must pay back
411)
A)
B)
C)
$106.09.
D)
412)
The PE ratio for a stock is
412)
A)
the current yield of the stock.
B)
the price of the stock divided by its earnings per share.
C)
the predicted volatility of the stock.
D)
the predicted earnings per share of the stock divided by its current yield.
B
413)
The nominal rate of interest is
413)
A)
the real rate of interest minus the previous year’s change in the price level.
B)
the same as the price level.
C)
the interest rate actually paid by the borrower.
D)
lower than the real rate in a period of inflation.
C
414)
A disadvantage of the partnership form of business organization is
414)
A)
its limited liability.
B)
its limited access to capital.
C)
that it can issue only one class of stock.
D)
that the owners must fight a lot of red tape to form the firm.
B
C