High Tech Corp

question 13

Multiple Choice

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is most correct?

• A) The stock price will likely increase because the value of stock is based on reported cash flow.
• B) The stock price may decrease because investors may predict that future cash flows will decrease due to the lack of innovation and new products.
• C) The change will have no impact on stock price because the company's profits will not change in 2010.
• D) The stock price will increase only if reported profits in 2010 are also higher than profits reported in 2009.

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Definitions:

Continuous Flow

A process in manufacturing that involves the constant movement of goods through the production system without any stoppages.

Product Costs

Costs incurred by a business to manufacture a product or acquire products for resale, including material, labor, and overhead.

Direct Materials

Raw materials that can be directly identified and easily traced to the manufacturing of finished goods.

Factory Overhead

Refers to all indirect costs associated with manufacturing, including but not limited to utilities, rent, and equipment maintenance, which are not directly tied to the production of specific goods.