Correct Answer: A

Market synergy arises when products or services have positive complementary effects Shopping mails reflect this type of synergy.

Correct Answer: C

A tactical profit plan, also called a budget, must be detailed enough that middle managers know exactly what cost and revenue targets they are responsible for. Tactical plans necessarily focus on the short term, and they must detail responsibilities at all levels of the organization. Lastly, they must be quantitative so that managers know exactly what their goals are.

Correct Answer: B

If the culture is strong, the organization's key values are intensely held and widely shared. Substantial training has been expended to achieve this high degree of acceptance, minimizing the need for formal, written policies.

Correct Answer: B

The required rate of return on equity capital in the capital asset pricing model is the risk- free rate (determined by government securities), plus the product of the market risk premium times the beta coefficient (beta measure the firm's risk). The market risk premium is the amount above the risk-free rate that will induce investment in the market. The beta coefficient of an individual stock is the correlation between the volatility (price variation) of the stock market and that of the price of the individual stock. For example, if an individual stock goes up 15% and the market only 10%, beta is 1.5.

Correct Answer: A

The difference between collections and payables is $5,000 daily. Five day's worth amounts to $25,000 of float.

Correct Answer: B

Providers of equity capital are exposed to more risk than are lenders because the firm is not obligated to pay them a return. Also, in case of liquidation, creditors are paid before equity investors. Thus, equity financing is more expensive than debt because equity investors require a higher return to compensate for the greater risk assumed.

Correct Answer: B

A reverse stock split decreases the number of shares outstanding, thereby increasing the market price per share. A reverse stock split may be desirable when a stock is selling at such a low price that management is concerned that investors will avoid the stock because it has an undesirable image.

Correct Answer: D

Incremental costing can be used in making decisions regarding the acceptance of special orders and make-or-buy decisions. Many quantitative and non quantitative factors are involved in such decisions. The first step is to determine which costs are relevant to the decision. A relevant cost is any cost that will differ depending upon the decision made. The costs described in situations I and IV are relevant costs. In situation I, the cost can be avoided if the special order is not accepted. In situation IV, an opportunity cost is associated with the "make" alternative. Management accountants are frequently asked to analyze various decision situations, including the following:

I. The cost of a special device that is necessary if a special order is accepted. II. The cost proposed

annually for the plant service for the grounds at corporate headquarters.

Ill. Joint production costs incurred, to be considered in a sell-at-split versus a process- further decision.

IV.

The costs associated with alternative uses of plant space, to be considered in a make/buy decision.

V.

The cost of obsolete inventory acquired several years ago, to be considered in a keep- versus-disposal

decision.

Correct Answer: D

Correct Answer: D

Without regard to rental of idle production capacity, the company will lose $3 per unit ($33 purchase price -- $30 relevant cost) by purchasing the plugs. The total annual loss will be $90,000 (30,000 units x $3). Consequently, to achieve the targeted savings, the minimum annual rent must be $190,000 ($90,000 loss from purchasing + $100,000 targeted savings).