MBA701 MIDTERM PREP EXAM
2025/2026 QUESTIONS AND ANSWERS
100% PASS
Which of the following is an implicit cost to a firm that produces a good or service?
a. Labor costs.
b. Costs of operating production machinery.
c. Foregone interest of using money that could have been kept in a bank.
d. Costs of renting or buying land for a production site. - ANS c. Foregone interest of using
money that could have been kept in a bank.
Jacqui decides to open her own business and earns $50,000 in accounting profit the first year.
When deciding to open her own business, she turned down three separate job offers with
annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from
running her own business? [Economic Profit = Total revenue - Total costs (including explicit and
implicit costs)].
a. $-55,000
b. $-5,000
c. $5,000
d. $20,000 - ANS c. $5,000
Incentive plans imply ____.
a. if managers get highly paid, then they work hard.
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, b. if managers put forth little effort, they receive little pay; if they put forth much effort and
hence generate many sales and more profit, they receive a lot of pay.
c. managers are not selfish.
d. managers should be watched all the time. - ANS b. if managers put forth little effort, they
receive little pay; if they put forth much effort and hence generate many sales and more profit,
they receive a lot of pay.
If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at
the end of year two, then the present value of these cash flows is ____. [For a stream of future
values: PV = FV1/(1+i)1 + FV2/(1+i)2 + ... + FVn/(1+i)n].
a. $2,562
b. $3,200
c. $439
d. $3,000 - ANS $2,562 (use equation and add up the two years)
If the annual interest rate is 0 percent, the present value of receiving $210 in the next year is
____. [PV = FV/(1+i)n].
a.$221
b.$200
c.$201
d.$210 - ANS d.$210 (zero interest rate means no value change)
A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by
$2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of
usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the
end of each year. If the interest rate is 7 percent, what is the net present value of purchasing
the tractor? [N(Q) = B(Q) - C(Q)].
a.-$3,467.46
b.-$2,498.35
c.$2,320.12
d.$6,501.65 - ANS b.-$2,498.35 (the reduced cost amounts go over each year of the
equation, then total the amounts and subtract by the cost)
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
2025/2026 QUESTIONS AND ANSWERS
100% PASS
Which of the following is an implicit cost to a firm that produces a good or service?
a. Labor costs.
b. Costs of operating production machinery.
c. Foregone interest of using money that could have been kept in a bank.
d. Costs of renting or buying land for a production site. - ANS c. Foregone interest of using
money that could have been kept in a bank.
Jacqui decides to open her own business and earns $50,000 in accounting profit the first year.
When deciding to open her own business, she turned down three separate job offers with
annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from
running her own business? [Economic Profit = Total revenue - Total costs (including explicit and
implicit costs)].
a. $-55,000
b. $-5,000
c. $5,000
d. $20,000 - ANS c. $5,000
Incentive plans imply ____.
a. if managers get highly paid, then they work hard.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, b. if managers put forth little effort, they receive little pay; if they put forth much effort and
hence generate many sales and more profit, they receive a lot of pay.
c. managers are not selfish.
d. managers should be watched all the time. - ANS b. if managers put forth little effort, they
receive little pay; if they put forth much effort and hence generate many sales and more profit,
they receive a lot of pay.
If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at
the end of year two, then the present value of these cash flows is ____. [For a stream of future
values: PV = FV1/(1+i)1 + FV2/(1+i)2 + ... + FVn/(1+i)n].
a. $2,562
b. $3,200
c. $439
d. $3,000 - ANS $2,562 (use equation and add up the two years)
If the annual interest rate is 0 percent, the present value of receiving $210 in the next year is
____. [PV = FV/(1+i)n].
a.$221
b.$200
c.$201
d.$210 - ANS d.$210 (zero interest rate means no value change)
A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by
$2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of
usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the
end of each year. If the interest rate is 7 percent, what is the net present value of purchasing
the tractor? [N(Q) = B(Q) - C(Q)].
a.-$3,467.46
b.-$2,498.35
c.$2,320.12
d.$6,501.65 - ANS b.-$2,498.35 (the reduced cost amounts go over each year of the
equation, then total the amounts and subtract by the cost)
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
