How Can the Conflict Between Cost Minimization and Performance Evaluation

question 35

Multiple Choice

How can the conflict between cost minimization and performance evaluation be overcome in a decentralized organization?

• A)dual transfer pricing systems
• B)market-based transfer pricing systems
• C)cost-based transfer pricing systems
• D)negotiated transfer pricing systems

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Definitions:

Cost Of Capital

The rate of return that a company must earn on its investments to maintain its market value and attract funds.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project.

Beta

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole, where a beta greater than one indicates higher than market volatility and less than one indicates lower.

Security Market Line

The Security Market Line graphically represents the expected return of assets as a function of their systematic, non-diversifiable risk.