The Managers of Winning Ways Ltd

question 103

Multiple Choice

The managers of Winning Ways Ltd.receive performance bonuses based on the company's profit.Which inventory cost formula are they likely to favour in periods of declining prices?

• A)FIFO
• B)average cost
• C)They would have no preference.
• D)Need more information to answer.

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Definitions:

Call Option

is a financial contract that gives the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

American Call Option

A financial derivative that gives the buyer the right, but not the obligation, to buy a stock at a certain price within a specified time frame.

Exercise Price

The price at which the holder of an option can buy (call) or sell (put) the underlying security or commodity.

Option Prices

The cost to purchase an option, which gives the holder the right, but not the obligation, to buy or sell an asset at a specified price before a particular date.