To Decide If a Business Is Worth More to the Shareholder

question 108

Multiple Choice

To decide if a business is worth more to the shareholder if sold,the parent firm generally considers all of the following factors except for

• A) The after-tax cash flows of the business to be sold
• B) The after-tax sale value of the business to be sold
• C) The parent's cost of capital
• D) A and B
• E) A, B, and C

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Definitions:

Constant-cost Industries

Industries where the costs of production do not change significantly with an increase or decrease in the quantity produced.

Economic Efficiency

A condition where resources are allocated in a way that maximizes the production of goods and services, and minimizes waste and inefficiency.

Economic Profit

The difference between total revenues and total costs, including both explicit and implicit costs, representing the financial gain in undertaking a particular business activity.

MR = MC

An economic condition where a firm's marginal revenue equals its marginal cost, often used to determine the profit-maximizing level of production.