Figure 13-2

question 35

Multiple Choice

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-6. Should Autry process dac further?

• A) No, income will be $1,500 lower.
• B) No, income will be $5,000 lower.
• C) Yes, income will be $1,500 higher.
• D) Yes, income will be $5,000 higher.
• E) It doesn't matter; income will be the same.

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Definitions:

Risk Premium

The additional return required by an investor for tolerating a higher level of risk compared to a safe investment.

Market Risk

The possibility for investors to experience losses due to factors that affect the overall performance of the financial markets.

Total Risk

The complete spectrum of all types of risk that an investment or project could potentially face, including both systematic and unsystematic risks.

Expected Return

The expected return is the average return expected on an investment over a period.