Firm M's Earnings and Stock Price Tend to Move Up

question 84

Multiple Choice

Firm M's earnings and stock price tend to move up and down with other firms in the S&P 500,while Firm W's earnings and stock price move counter cyclically with M and other S&P companies.Both M and W estimate their costs of equity using the CAPM,they have identical market values,their standard deviations of returns are identical,and they both finance only with common equity.Which of the following statements is CORRECT?

• A) M should have the lower WACC because it is like most other companies,and investors like that fact.
• B) M and W should have identical WACCs because their risks as measured by the standard deviation of returns are identical.
• C) If M and W merge,then the merged firm MW should have a WACC that is a simple average of M's and W's WACCs.
• D) Without additional information,it is impossible to predict what the merged firm's WACC would be if M and W merged.
• E) Since M and W move counter cyclically to one another,if they merged,the merged firm's WACC would be less than the simple average of the two firms' WACCs.

Determine the overhead cost assigned to products under traditional costing method.

Compute activity rates under activity-based costing system.

Determine the overhead cost assigned to products under activity-based costing system.

Understand the impact of costing methods on product cost determination.

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Definitions:

Primary Reinforcer

A naturally reinforcing item or outcome, such as food or water, that does not require learning to be considered rewarding.

Unconditioned Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a response without the need for prior learning.

Secondary Reinforcer

A stimulus that becomes reinforcing through its association with a primary reinforcer, such as money earning its value through its exchange for food or other needs.

Primary Reinforcer

A stimulus that is naturally rewarding and satisfying, such as food or water, which does not require learning to become desirable.