The Most Likely Result of Using a Negotiated Transfer Price

question 6

Multiple Choice

The most likely result of using a negotiated transfer price is that:

• A) The resulting decision reflects purely economic considerations.
• B) More than the optimum number of units will be transferred between divisions.
• C) Fewer than the optimum number of units will be transferred between divisions.
• D) It takes away from the buying and selling units the ultimate responsibility for determining the transfer price.
• E) The end result might reflect the relative bargaining skills of the negotiating managers.

---

Definitions:

Portfolio Beta

A measure of the volatility of a portfolio relative to the overall market; the aggregate beta of all the investments in the portfolio.

Systematic Risk

The inherent risk associated with the entire market or market segment, undiversifiable through portfolio diversification.

Unsystematic Risk

The risk associated with a specific company or industry, which can be mitigated through diversification of an investment portfolio.

Security Market Line

A representation in the capital asset pricing model (CAPM) showing the relationship between expected return and systematic risk.