question
What takes place in the indirect finance market?
A. Government purchases of buildings and equipment are sold to the highest bidder
B. Part ownership of corporations is sold in the form of stocks
C. Deposits of savers are accepted and loans made to borrowers
D. Corporate and government bonds are sold to savers
A. Government purchases of buildings and equipment are sold to the highest bidder
B. Part ownership of corporations is sold in the form of stocks
C. Deposits of savers are accepted and loans made to borrowers
D. Corporate and government bonds are sold to savers
answer
C
question
Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs. The bakery earns $800,000 in revenues and has $2 million in net worth. Based on this information, what is the accounting profit for Donnie's Donuts?
A. $150,000
B. $350,000
C. $600,000
D. $1.2 million
A. $150,000
B. $350,000
C. $600,000
D. $1.2 million
answer
B
question
What are explicit costs?
answer
Out of pocket expenditures for resources hired from outside the firm
question
What are implicit costs?
answer
Opportunity costs for using firm-owned resources
question
How is economic profit found?
answer
Total revenue minus explicit and implicit costs
question
How does a firm raise external funds through direct finance?
answer
With direct finance, funds flow from savers to firm through financial markets, such as the New York Stock Exchange
question
How can a sole proprietorship raise funds needed for firm expansion?
answer
By retaining earnings, taking on partners, or borrowing from relatives, friends, or a bank
question
How are corporate profits taxed in the United States?
A. Corporate profits are not taxed at all
B. Earnings are taxed first as corporate profits then as personal income after dividends are paid
C. Earnings are taxed first by state sales taxes and then as corporate profits at the Federal Level
D. Earnings are taxed at first as personal income then as corporate profits at the Federal level
A. Corporate profits are not taxed at all
B. Earnings are taxed first as corporate profits then as personal income after dividends are paid
C. Earnings are taxed first by state sales taxes and then as corporate profits at the Federal Level
D. Earnings are taxed at first as personal income then as corporate profits at the Federal level
answer
B
question
Which of the following is not an advantage of starting a new business as a corporation?
A. separation of ownership and business liability
B. possibility of double taxation
C. enhanced ability to raise funds
D. ability to share risks
A. separation of ownership and business liability
B. possibility of double taxation
C. enhanced ability to raise funds
D. ability to share risks
answer
B
question
Which of the following is an advantage of starting a new business as a proprietorship?
A. Business profits are not taxed
B. A proprietorship has few government rules and regulations to comply with
C. The owner has limited personal liability
D. A proprietorship can easily attain additional funding
A. Business profits are not taxed
B. A proprietorship has few government rules and regulations to comply with
C. The owner has limited personal liability
D. A proprietorship can easily attain additional funding
answer
B
question
Tanesha sells homemade candles over the Internet. Her annual revenue is $64,000 per year, the explicit costs of her business are $17,000, and the opportunity costs of her business are $22,000. What is her accounting profit?
A. $17,000
B. $22,000
C. $47,000
D. $64,000
A. $17,000
B. $22,000
C. $47,000
D. $64,000
answer
C
question
Sole Proprietorship
answer
a firm owned by a single individual and not organized as a corporation
question
Partnership
answer
a firm owned jointly by two or more persons and not organized as a corporation
question
Corporation
answer
a legal form of business that provides owners with limited liability
question
Indirect finance
answer
A flow of funds from savers to borrowers through financial intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other borrowers).
question
Direct finance
answer
a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange
question
Bonds
answer
financial securities that represent promises to repay a fixed amount of funds
question
Coupon payments
answer
interest payments on a bond
question
Interest rate
answer
the cost of borrowing funds, usually expressed as a percentage of the amount borrowed
question
Dividends
answer
the remaining profits are paid to shareholders
question
All of the following statements are true, except:
A. economic profits are less than accounting profits
B. a firm maximizes profit when total cost equals total revenue
C. a firm earns an economic profit when its revenue are greater than all of its implicit and explicit costs
D. a firm earns an accounting profit when its revenues are greater than its taxes and operating expenses
A. economic profits are less than accounting profits
B. a firm maximizes profit when total cost equals total revenue
C. a firm earns an economic profit when its revenue are greater than all of its implicit and explicit costs
D. a firm earns an accounting profit when its revenues are greater than its taxes and operating expenses
answer
B
question
Economic profit
answer
is equal to a firm's revenues minus all of its costs, implicit and explicit. Because accounting profit excludes some implicit costs, it is larger than economic profit
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