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The trough of a business cycle is generally characterized by:
Choice 'c' is correct. The trough of a business cycle is an economic low point with no positive indicators for the future. It is characterized by unused productive capacity and an unwillingness to risk new investments.
Choice 'a' is incorrect. Shortages may occur during a peak.
Choice 'b' is incorrect. Increasing purchasing power and increasing capital investments come with recovery.
Choice 'd' is incorrect. Declining purchasing power comes with inflation; unlikely in a trough.
The optimal level of inventory would be affected by all of the following, except the:
Choice 'b' is correct. The current level of inventory has no impact on the optimal level of inventory.
Choices 'a', 'c', and 'd' are incorrect. The optimal level of inventory is affected by:
1. The inventory usage rate.
2. The cost per unit of inventory - which will have a direct impact on inventory carrying costs.
3. The cost of placing on order impacts order frequency, which affects order size and optimal inventory levels.
The limited liability of the shareholders of a closely-held corporation will most likely be disregarded if the shareholders:
Choice 'c' is correct. The 'corporate veil' can be pierced in situations in which the corporation was undercapitalized at formation, where it is the alter ego of the shareholders, or when it used to perpetrate a fraud.
Choice 'a' is incorrect. Shareholders may lend money to their corporation. This does not make such shareholders personally liable for the corporation's debt.
Choice 'b' is incorrect. Officers, directors, and employees are not personally liable for the corporation's debt, and there is no reason to change this role merely because such persons also own shares.
Choice 'd' is incorrect. The desire to limit liability is a valid reason to adopt the corporate form and will not, by itself, allow the 'corporate veil' to be pierced.
Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?
Choice 'd' is correct. Both a limited partnership and a corporation:
1. Can only be created by statute, and
2. Each must file a copy of its certificate with the proper state agency.
Choice 'a' is incorrect. There are instances in which limited partners do vote on certain partnership matters (e.g., approve new general or limited partners).
Choice 'b' is incorrect. Limited partnership interests are not automatically exempt from the federal securities laws.
Choice 'c' is incorrect. Limited partners do not owe a fiduciary duty to the limited partnership.
What term is used to describe a partnership without a specified duration?
Choice 'd' is correct. A partnership at will is a partnership with no definite term (i.e., without specified duration). Such a partnership can be terminated at any time.
Choice 'a' is incorrect. A partnership without a specified duration is called a partnership at will, not a perpetual partnership. There is no such thing as a perpetual partnership because a partnership is not perpetual. A partnership may be dissolved after a partner dies or otherwise dissociates from the partnership.
Choice 'b' is incorrect. A partnership by estoppel is the appearance of a partnership when there is no formal partnership. If parties who are not partners give the appearance to third parties that they are partners, the law may deem the parties to be a partnership by estoppel. The parties will be treated as partners, even though they are not.
Choice 'c' is incorrect. The legal term for a partnership of indefinite duration is a partnership at will, not an indefinite partnership.
General Partnership
