You Need to Use the Pure Play Approach to Assign

question 48

Multiple Choice

You need to use the pure play approach to assign a cost of capital to a proposed investment.Which one of the following characteristics should you most concentrate on as you search for an appropriate pure play firm?

• A)Firm size
• B)Firm location
• C)Firm experience
• D)Firm operations
• E)Firm management

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Definitions:

Transferred-In Costs

Costs associated with units of product moved from one production process to another in the manufacturing cycle.

Prior Processing Department

A section within a manufacturing facility where raw materials undergo initial stages of processing before moving to subsequent phases of production.

Conversion Costs

The total expenses of manufacturing overhead and direct labor required to transform raw materials into completed products.

Assembly Department

A division within a manufacturing plant where components are assembled into final products.