# Business Environment and Concepts MCQs Quiz

Question

BEC Exam 1

1. Para Co. is reviewing the following data relating to an energy saving investment proposal:

Cost $50,000

Residual value at the end of 5 years 10,000

Present value of an annuity of 1 at 12% for 5 years 3.60

Present value of 1 due in 5 years at 12% 0.57

What would be the annual savings needed to make the investment realize a 12% yield?

a. $12,306

b. $8,189

c. $11,111

d. None of the above

2. If the relationship between variables x and y is linear, then the points on the scatter diagram

a. Will fall exactly on a straight line

b. Will fall on a curve

c. Must represent population parameters

d. Are best represented by a straight line

3. To test if the slope coefficient ß1 in the population regression model is significantly different from zero, a hypothesis test is conducted on the slope coefficient b1 in the regression equation developed using sample data. This test is a:

a. nonparametric test

b. z test

c. t test

d. f test

4. If a B-school wants to predict or forecast the graduating GPA of entering freshmen (an unknown

variable of interest), it might look at, among other things, their SAT scores (a known variable). Which

of the following statements does not represent this situation?

a. GPA is a dependent variable as it might depend on SAT scores

b. GPA is a fixed variable and does not vary among graduating students

c. SAT is an explanatory variable as it might explain the variation in GPA

d. For a student now entering the B-school, SAT is known but graduating GPA is unknown and must be predicted

5. In a scatter plot of the two variables, y = the annual cost of operating a commercial airliner and x = the annual number of passengers served by the airline, you would expect to see

a. No discernable pattern other than a random scatter of observation or points

b. A downward trending band of observations or points

c. An upward trending band of observations or points

d. A flat or horizontal band of observations or points

6. Two events, A and B, are independent, with P(A)=0.6 and P(B)=0.2, then A and B are

a. Union events

b. Collectively exhaustive events

c. Complementary events

d. Mutually exclusive events

7. Which of the following is least likely to be used to prepare a cash budget for a manufacturing firm?

a. Estimated net income

b. Estimated purchases

c. Estimated sales and collections

d. Payment terms

8. Beam Company currently has 100,000 shares of common stock outstanding and a price-earnings ratio of

seven. Net income for the recently ended year is $375,000. Beam’s board of directors declared a 15-for-2 stock split. Sunshine owned 100 shares of Beam before the split. What is the approximate value of Sunshine’s investment in Beam immediately after the split?

a. 26

b. 350

c. 2625

d. 5250

9. Which of the following ratios would most likely be used by management to evaluate short-term liquidity?

a. Return on total assets

b. Sales to cash

c. Accounts receivable turnover

d. Acid test ratio

10. Which of the following formulas should be used to calculate the economic rate of return on common stock?

a. (Dividends + Change in price) Divided by Beginning Price

b. (Net income-Preferred dividend) Divided by Common Shares Outstanding

c. Market price per share divided by earnings per share

d. Dividends per share divided by market price per share

11. Level Company’s current ratio is 2.5 to 1. Level’s current liabilities are $252,000. Loan provisions require that

Level’s current ratio not drop below 1.5 to 1. What is the maximum additional short-term debt that Level may

incur?

a. 168,000

b. 378,000

c. 420,000

d. 630,000

12. ABC Co. had debt with a market value of $1 million and an after-tax cost of financing of 8%. ABC also had equity

with a market value of $2 million and a cost of equity capital of 9%. ABC’s weighted-average cost of capital would

be:

a. 8%

b. 8.5%

c. 8.7%

d. 9%

13. The standard error estimate is computed as the square root of the mean squared error and it is a standard deviation of the errors. It is therefore useful for to making a judgment about the fit of regression model in conjunction with the assumption that __________.

a. The model is linear

b. The error terms have constant variance

c. The error terms are independent

d. The error terms are normally distributed

14. If the sum of squares of error for a simple regression model fitted for twelve pairs of observations is 250, what is the standard error of the estimate for the model?

a. 4

b. 4.56

c. 4.77

d. 5

15. Unity Company has made changes in its inventory handling policies that are expected to increase turnover from 7

to 8 times per year. Unity’s budgeted sales and costs of sales for the next year are $42 million and $28 million,

respectively. At a 6% interest rate, what are Unity’s expected savings from the lower inventory level?

a. 15,000

b. 30,000

c. 45,000

d. 60,000

16. If the relationship between y and x is given by the equation y = 1.57 – 0.0407 x, the slope coefficient 0.0407 means this:

a. For every unit increase in x, y increases by 1.5293

b. For every unit increase in x, y decreases by 1.5293

c. For every unit increase in x, y increases by 0.0407

d. For every unit increase in x, y decreases by 0.0407

17. Sixty percent of all technical assistants would like to have a PC. Fifty percent of all technical

assistants would like to have MAC. Twenty percent of all technical assistants would like to have both.

If a technical assistant is randomly selected, what is the probability that she would like to have MAC,

given that she would like to have a PC as well?

a. .33

b. .60

c. 1.10

d. .90

18. If events are mutually exclusive, then:

a. Their probabilities are less than one

b. Their probabilities sum to one

c. Both events cannot occur at the same time

d. Both of them contain every possible outcome of an experiment

19.The capital structure of a firm includes bonds with a coupon rate of 12% and an effective interest rate is 14%. The

corporate tax rate is 30%. What is the firm’s net cost of debt?

a. 8.4%

b. 9.8%

c. 12%

d. 14%

20. The highest strength of association is reflected by which of the following correlation coefficients?

a. -1

b. -.95

c. -1.5

d. .9

21. Which of the following pairs of events are mutually exclusive?

a. A contractor loses a major contract, and he increases his work force by 50%

b. A man is older than his uncle and he is younger than his cousins

c. A woman is CEO of a large company and is an artist

d. none of the above

22. If the relationship between x and y is positive, as variable y decreases, variable y

a. increases

b. decreases

c. remains the same

d. changes linearly

23.Revel Company has average daily sales of $5,000, 90% of which are on credit. Receivables are collected 28 daysafter sales, on average. What is Revel’s average accounts receivable balance?

a. 4,500

b. 5,000

c. 126,000

d. 140,000

24.Fluid Company’s current assets increased by $120 and current liabilities decreased by $200. Fluid’s net working

capital:

a. Decreased by $320

b. Decreased by $80

c. Did not change

d. Increased by $320

25. What is the probability of getting an odd number in tossing a dice?

a. 1/6

b. 1/3

c. ½

d. None of the above

26.The following information pertains to Quest Co.’s Gold Division:

Sales $311,000

Variable cost 250,000

Traceable fixed costs 50,000

Average invested capital 40,000

Imputed interest rate 10%

Quest’s return on investment was:

a. 10%

b. 13.33%

c. 27.50%

d. 30%

27. What is the probability that a value chosen at random from a population is larger than the median of the population?

a. .25

b. .50

c. .75

d. None of the above

28. What is the probability of getting more than 4 in rolling a dice?

a. 1

b. 1/6

c. 1/3

d. ½

29.The target capital structure of Traggle Co. is 50% debt, 10% preferred equity, and 40% common equity.

The interest rate on debt is 6%, the yield on the preferred is 7%, the cost of common equity is 11.5%, and the tax

rate is 40%. Traggle does not anticipate issuing any new stock. What is Traggle’s weighted average cost of capital?

a. 6.5%

b. 6.77%

c. 7.10%

d. 8.30%

30. The economic order quantity model may be used for cash management to determine appropriate:

a. Ratio of current assets to current liabilities

b. Mix of cash and marketable securities

c. Long-term capitalization

d. Credit and collection policies

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