Required Earnings Are The

question 5

Multiple Choice

Required earnings are the:

• A) adjusted net income multiplied by the required rate of return on common equity capital.
• B) net income the analyst expects the firm to generate multiplied by the required rate of return on common equity capital.
• C) the market value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital.
• D) the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital.

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Definitions:

Profitable Output

The level of production at which a business or economic activity yields the maximum profit.

Firm

A business organization, such as a corporation, partnership, or sole proprietorship, that sells goods or services to consumers in exchange for money.

Total Profit

The overall financial gain made by a business after subtracting all costs from the total revenue generated from its operations.

AVC

Average Variable Cost; the total variable cost divided by the quantity of output produced.