If Expected Return Is Less Than Required Return on an Asset

question 92

Multiple Choice

If expected return is less than required return on an asset, rational investors will

• A) buy the asset, which will drive the price up and cause the expected return to reach the level of the required return.
• B) buy the asset, since the price is expected to increase.
• C) sell the asset, which will drive the price down and cause the expected return to reach the level of the required return.
• D) sell the asset, which will drive the price up and cause the expected return to reach the level of the required return.

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Definitions:

Underapplied Overhead

Underapplied overhead occurs when the allocated amount of overhead costs in a costing system is less than the actual overhead incurred.

Indirect Materials

Materials used in the production process that cannot be directly linked to a specific product, such as lubricants and cleaning supplies.

Production

The process of creating goods and services.

Manufacturing Overhead

Indirect costs associated with the manufacturing process, including utilities, rent, and salaries not directly tied to production.