Question 26

When a company purchases property and casualty insurance, it is attempting to mitigate risk by practicing

A. Risk avoidance.

B. Risk transfer.

C. Operational risk.

D. Exploiting risks.

Question 27

Which of the following is an example of political risk?

A. A US company pays its employees in a non-US country in a currency other than dollars.

B. Having government contracts be responsible for a relatively high percentage of a company's revenue.

C. A company adds a significant amount of current debt and uses the proceeds to purchase longterm assets such as property and equipment.

D. A company does not reprimand or discipline an employee who comes to work under the influence of alcohol.

Question 28

The KMN Company sells products and services on credit and for cash. Which of the following actions taken by KMN is an example of risk sharing?

A. Only selling products and services for cash

B. Only selling products and services on credit

C. Using a third-party credit evaluation company that provides information on a customer's likelihood of making payments on credit sales

D. Using a third-party financial institution who will accept a portion of the risk of uncollectible accounts in exchange for a percentage of each credit sale

Question 29

Which of the following actions is most likely to increase the risk of loss due to high operating leverage?

A. Issuing common equity and using the proceeds to retire (pay back early) debt

B. Issuing debt and using the proceeds to retire (buy back) common stock

C. Reducing the salary and increasing the commission rate paid to the sales staff

D. Increasing the salary and reducing the commission rate paid to the sales staff

Question 30

The LOH Company manufactures a product comprising 15% of its total sales in a country with a government having a history of seizing assets from foreign companies. Which of the following actions taken by LOH is an example of risk avoidance?

A. Moving the manufacturing of the product out of the country

B. Structuring the manufacturing as a joint venture with a domestic partner

C. Reducing the product's percentage of company sales to 8%

D. Increasing the product's percentage of company sales to 25%