The Pure Play Approach

question 302

Multiple Choice

The pure play approach:

• A) Cannot be used if the firm has preferred stock outstanding.
• B) Is easier to implement than the subjective approach.
• C) Is most useful when each division makes a multitude of different products.
• D) Should be used only if a firm has more than three divisions.
• E) Can be used to find the cost of capital for a division.

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Definitions:

Market Equilibrium

A situation in which the supply of an item is exactly equal to its demand, leading to a stable market price.

Consumer Surplus

The discrepancy between the aggregate amount buyers are willing and capable of paying for a good or service versus what they really pay.

Market Supply

The total amount of a specific good or service available for purchase at any given price, from all producers combined.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting the good's sensitivity to price changes.