A Company Is Proposing to Expand Its Productive Capacity by a Significant

question 16

Multiple Choice

A company is proposing to expand its productive capacity by a significant amount. What is the decision rule that should be applied by the directors in deciding whether or not to accept the expansion proposal? Accept the project if:

• A) Its incremental revenue exceeds incremental costs
• B) Incremental revenue exceeds incremental fixed costs
• C) Incremental fixed costs do not exceed variable costs
• D) Incremental fixed costs plus incremental variable costs exceed incremental revenue

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Definitions:

Major Exchanges

The leading stock exchanges worldwide, such as the New York Stock Exchange and the Nasdaq, where securities are bought and sold.

Price Setting

The process by which a company determines the selling price of its products or services.

Sarbanes-Oxley Act

A U.S. law enacted in 2002 to protect investors from fraudulent financial reporting by corporations.

Auditors

Independent professionals who examine the financial records and business transactions of a company to ensure accuracy and compliance with accounting standards.