Shasta Company Is Trying to Decide Whether to Continue to Manufacture

question 65

Multiple Choice

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier. Which of the following is irrelevant with respect to this decision?

• A)the quality of the component purchased from the outside supplier
• B)the outside supplier's ability to deliver the component on a timely basis
• C)the alternative uses of the facilities being used to currently manufacture the component
• D)the unavoidable fixed manufacturing costs associated with the manufacture of the component

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Definitions:

Average Excess Returns

The average return on an investment above the return of a benchmark or risk-free asset.

Quasilinear

Pertaining to equations or functions that are nearly, but not exactly, linear in their behavior or representation.

Betas

A measure of a stock's volatility in relation to the overall market; a beta above 1 indicates greater volatility than the overall market.

Multifactor Model

Model of security returns positing that returns respond to several systematic risk factors as well as firm-specific influences.