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    Multiple choice

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    The pricing objective of maximizing profits:
    1 has not been affected by other, more socially focused concerns.
    2 is to be implemented under any and all circumstances.
    3 has not always been considered the underlying objective of any pricing policy.
    4 must be considered when determining the price needed to increase market share.

    To stay in business, a company must have a selling price that is:
    1 acceptable to the customer.
    2 able to recover the variable costs of production.
    3 the highest in the marketplace.
    4 equal to or lower than the company's costs per unit.

    An internal issue to be considered when setting a price is:
    1 whether the process is labor-intensive or automated.
    2 the customer's preferences for quality versus price.
    3 current prices of competing products or services.
    4 the life of the product or service.

    An external issue to be considered when setting a price is:
    1 the variable costs of the product or service.
    2 the desired rate of return.
    3 the quality of materials and labor.
    4 the number of competing products or services.

    Fixed costs that change for activity outside the relevant range would include:
    1 supervision costs.
    2 electricity costs.
    3 production supplies costs.
    4 raw materials costs.

    When gross margin pricing is used, the markup percentage includes:
    1 desired profits plus total selling, general, and administrative expenses.
    2 only the desired profit factor.
    3 total costs and expenses.
    4 desired profits plus total fixed production costs plus total selling, general, and administrative expenses.

    The return on assets pricing method:
    1 has very little appeal and support.
    2 has a primary objective of earning a minimum rate of return on assets.
    3 is a crude approach to pricing and should be used as a last resort.
    4 replaces the desired rate of return used in cost-based pricing methods with a desired profit objective.

    The pricing method that establishes selling prices based on a stipulated rate above total production costs is:
    1 return on assets pricing.
    2 target cost pricing.
    3 gross margin pricing.
    4 time and materials pricing.

    A major advantage of the target costing approach to pricing is that target costing:
    1 allows a company to analyze the potential profit of a product before spending money to produce the product.
    2 is not dependent on customers' quality versus price decisions.
    3 identifies unproductive assets.
    4 anticipates the product's profitability midway through its life cycle.

    Use of market transfer prices:
    1 is the only acceptable approach in a free enterprise economy.
    2 usually does not cause the selling division to ignore negotiating attempts by the buying division.
    3 may cause an internal shortage of materials.
    4 usually does not work against the operating objectives of the company as a whole.

    The variables to be considered in the capital investment decision are:
    1 expected life, estimated cash flow, and investment cost.
    2 expected life, estimated cost, and projected capital budget.
    3 estimated cash flow, investment cost, and corporate objectives.
    4 economic conditions, economic policies, and corporate objectives.

    Another term for the minimum rate of return is the:
    1 payback rate.
    2 discounted rate.
    3 capital rate.
    4 hurdle rate.

    The after-tax amount is used for which of the following components of the cost of capital?
    1 Cost of debt
    2 Cost of common stock
    3 Cost of preferred stock
    4 Cost of retained earnings

    Capital investment proposals should be ranked in decreasing order of:
    1 length in years.
    2 dollar amount required.
    3 residual value expected.
    4 rate of return.

    Which of the following items is irrelevant to capital investment analysis?
    1 Investment cost
    2 Residual value
    3 Carrying value
    4 Net cash flows

    The carrying value of a fixed asset is equal to its:
    1 current disposal value.
    2 current replacement cost.
    3 original cost.
    4 undepreciated balance.

    Which of the following items can be described as a noncash expense?
    1 Wages
    2 Advertising
    3 Income taxes
    4 Depreciation

    The time value of money concept is given consideration in long-range investment decisions by:
    1 assuming equal annual cash flow patterns.
    2 assigning greater value to more immediate cash flows.
    3 weighting cash flows with subjective probabilities.
    4 investing only in short-term projects.

    The net present value method of evaluating proposed investments:
    1 discounts cash flows at the minimum rate of return.
    2 ignores cash flows beyond the payback period.
    3 applies only to mutually exclusive investment proposals.
    4 measures a project's time-adjusted rate of return.

    The payback period is defined as the amount of time in years for the sum of:
    1 future net incomes to equal the original investment.
    2 net future cash inflows to equal the original investment.
    3 net present value of future cash inflows to equal the original investment.
    4 net future cash outflows to equal the original investment.

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    Solution Summary

    The solution explains some multiple choice questions relating to pricing methods, objectives, relevant range, markup percent and market